If workers in your city voted to have a union represent them in negotiations with employers, they would have monopoly power in wage determination. Employers would be in no position to exert monopsony power in their employment of workers in this market due to the large number of employers in the market. Labor supply is given by

LS = 60W 120 (or, equivalently W = LS/60 + 2)

Labor demand is given by

LD = 750 - 25W (or, equivalently W = -LD/25 + 30)

a) What is the equation for marginal revenue? (2)

b) Using the supply and demand equations, compute the wage rate and number of workers that would be hired when there is no union representation.

c) Using the supply and demand equations, compute the wage rate and number of workers hired when the union represents workers and acts to maximize aggregate wages to all workers hired.

d) Explain the possible impact of a union on a competitive market.

2.

Jaguar motors has a production function represented by q = 4KL. The current wages rate is R8 per hour and the rental rate of capital is R10 per hour. In the short run, the machinery (capital) is fixed at = 10.

a) What is the cost the company faces if it wants to produce q = 200 units of cars? (3)

b) What is the cost-minimising combination of labour and capital if the firm wants to produce q = 200 units of output? (5)