Assume that there are two teams (for simplicity, call them team 1 and team 2) that produce cricket games. Each team is a monopoly in their product market with demand curve: P(q) = 420 3q

The production function for each team is given by: q(K) = K where K is the quantity of labor hired by the team.

The aggregate supply of labor is: w(L) = 2L where L = K1 + K2 is the total amount of labor hired by the two teams.

Assume a bilateral monopoly, union and league consolidate market power. The union has bargaining power = 0.3.

a) Find the equilibrium quantity of labor.

b) What is the wage that gives players all the surplus? What is the wage that gives teams all the surplus?

c) Find the negotiated equilibrium wage.

d) If the teams agree to split the profits, how much labor is hired by each team (K)? Find each team's profits.

Now suppose that teams attempt to act as a collusive monopsony. For any period in which teams collude, the union can go on strike. In this case, teams must hire replacement players and get 100 less in profits in any period that they collude (so, they only get c = c100). Assume that the discount rate is = 0.6.

e) If the players do not strike, can the teams support a collusive monopsony?

f) If the players strike, can the teams support a collusive monopsony?

g) Will the teams collude or accept the negotiated wage? Explain your reasoning as fully as possible.