 | Economics 14/e McConnell | |||||
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| Economics 14/e McConnell | |||||
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28-3 Describe wage determination in a labor market in which workers are unorganized and many firms actively compete for the services of labor. Show this situation graphically using W1 to indicate the equilibrium wage rate and Q1 to show the number of workers hired by the firm as a group. Show the labor supply curve of the individual firm and compare it with that of the total market. Why the differences? In the diagram representing the firm identify total revenue total wage cost and revenue available for the payment of nonlabor resources.
28-4 Complete the following labor supply table for a firm hiring labor competitively:
| Units of Labor | Wage Rate | Total labor cost (wage bill) | Marginal resource (labor) cost |
| 0 | $14 | $______ | |
| 1 | 14 | ______ | $______ |
| 2 | 14 | ______ | ______ |
| 3 | 14 | ______ | ______ |
| 4 | 14 | ______ | ______ |
| 5 | 14 | ______ | ______ |
| 6 | 14 | ______ | ______ |
28-6 Assume a firm is a monopsonist which can hire its first worker for $6 but must increase the wage rate by $3 to attract each successive worker. Draw the firm’s labor supply and marginal labor cost curves and explain their relationships to one another. On the same graph plot the labor demand data of question 2 in Chapter 27. What are the equilibrium wage rate and level of employment? Why do these differ from your answer to question 4?
28-7 Assume a monopsonistic employer is paying a wage rate of Wm and hiring Qm workers as indicated in Figure 28-8. Now suppose an industrial union is formed and it forces the employer to accept a wage rate of Wc. Explain verbally and graphically why in this instance the higher wage rate will be accompanied by an increase in the number of workers hired.
Answers:
| 28-3 See Figure 28-3 and its legend |  |
| 28-4 Total labor cost data top to bottom: $0; $14; $28; $42; $56; $70; $84. Marginal resource cost data: $14 throughout. (a) The labor supply curve and MRC curve coincide as a single horizontal line at the market wage rate of $14. The firm can employ as much labor as it wants each unit costing $14; wage rate 5 MRC because the wage rate is constant to the firm. (b) Graph: equilibrium is at the intersection of the MRP and MRC curves. Equilibrium wage rate = $14; equilibrium level of employment = 4 units of labor. Explanation: From the tables: MRP exceeds MRC for each of the first four units of labor but MRP is less than MRC for the fifth unit.
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| 28-6 The monopsonist faces the market labor supply curve S -- it is the only firm hiring this labor. MRC lies above S and rises more rapidly than S because all workers get the higher wage rate that is needed to attract each added worker. Equilibrium wage rate = $12; equilibrium employment = 3 (where MRP = MRC). The monopsonist can pay a below-competitive wage rate by restricting its employment.
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| 28-7 The union wage rate Wc becomes the firm's MRC which we would show as a horizontal line to the left of S. Each unit of labor now adds only its own wage rate to the firm's costs. The firm will employ Qc workers the quantity of labor where MRP 5 MRC (5 Wc); Qc is greater than the Qm workers it would employ if there were no union. |
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