Non-union workers who command lower wage

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Reference no: EM13838703

A firm can hire unionized workers, who have received additional training and are therefore more productive than non-unionized workers, or non-union workers who command a lower wage. Specifically, if the firm hires unionized worker the production function is: QUnion = min{6K, 12L} and if they hire non-union worker the production function is: QNon-Union = min{4K, 9L}. Union workers are paid a wage of $14, while non-union workers are paid $8. The cost of capital is $15 regardless of worker type. The firm sells its output for $20 and wants to produce 72 units.

1. If the firm hires unionized workers, how many workers and how much capital will they employ? Draw the isoquant and isocost curves for this firm. Be sure to label all axis and intercepts.

2. If the firm hires non-unionized workers, how many workers and how much capital will they employ? Draw the isoquant and isocost curves for this firm. Be sure to label all axis and intercepts.

3. If the firm’s goal is to maximize profits, should they hire unionized or non-unionized workers? You must calculate the profits for each in order to receive full credit.

Reference no: EM13838703

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