How much will the quantity of labor demanded increase

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Maximizing Labor Income. Consider a union that faces a linear demand for its workers. The vertical intercept is $40 and the slope is $0.20 per worker, so the horizontal intercept is 200 workers. (Related to Application 1 on page 709.)

a. The union faces a trade-off between the wage and employment: For every $2 increase in the wage, employment decreases by workers.

b. Suppose the union tentatively picks a wage of $30, where the elasticity of demand for labor is 3.0 (in absolute value). If the union decreases the wage by 5 percent, by how much will the quantity of labor demanded increase? Will total labor income increase or decrease?

c. Suppose the union s objective is to maximize total labor income. What is the income-maximizing wage and quantity of labor demanded?

Reference no: EM131134466

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