Gina Picaretto is a production manager in Rich Manufacturing Company. Rich Manufacturing buys machine parts from Bhagat Incorporated, which Rich uses as input for its own production. Bhagat charges Rich cost of production per unit plus $5 markup per unit. Currently Bhagat's cost is $10 for labor and $10 for other inputs for per unit of production. Therefore, the unit price charged by Bhagat is $25. Due to union contract Bhagat's labor cost increases by 30%, which in turn raises the price by $3 ($25 to $28). Based on the above situation answer the following questions:

1. Should Gina contest the price increase? Explain.

2. Is this increase of Bhagat's price more justified in short run or long run? Explain.

3. How does increase in price of Bhagat's product affect the production decision of Rich Manufacturing?