If clerical workers in your state voted to have a union represent them

If clerical workers in your state voted to have a union represent them in negotiations with employers, they would have monopoly power in wage determination.

Employers would be in no position to exert monopsony power in their employment of clerks in this market due to the large number of employers in the market. Labor supply is given by LS = 50W – 100 (or, equivalently W = LS/50 + 2 ) Labor demand is given by LD = 700 – 25W (or, equivalently W = -LD/25 + 28 ) a. What is the equation for marginal revenue? b. Using the supply and demand equations, compute the wage rate and number of workers that would be hired when there is no union representation. c. Using the supply and demand equations, compute the wage rate and number of workers hired when the union represents workers and acts to maximize aggregate wages to all workers hired. d. Explain the impact of (c) on the competitive market.

ANSWER

a.
Marginal revenue is given by MR = (-2/25 )L + 28. It is twice as steep as labor demand and has the same vertical intercept.

b.
Equate LS to LD. Then we have
50W – 100 = 700 – 25W
W = 10.67
Plug W into labor supply or labor demand to get L = 433. (Since either the supply equation or the demand equation may be used here, students’ answers will differ slightly due to rounding.)

c.
Find the value of L where MR = 0. This occurs at L = 350. Plugging this into the demand equation, we obtain W = $14.