The following diagram shows the market for labour in a particular industry. It shows both the supply of labour (the average cost of labour) and the marginal cost of labour. If the labour market were competitive, the outcome would be w* and L*.
a. Suppose the workers in this industry form a union that is able to raise the wage above w*. Show the expected outcome in the figure.
b. Now suppose there is no union, but there is a monopsony buyer of labour. Show the expected outcome in this market.
c. Now suppose there is both a union and a monopsony firm. What can you predict about the outcome in this case?