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in an economy firms set a price at a markup of 20% over costs.Costs are in the form of wages so that P=(1.2)W trade unions
in an economy firms set a price at a markup of 20% over costs.Costs are in the form of wages so that P=(1.2)W trade unions enter into bargains with firs on wages. The higher the unemployment the less powerful the unions and the lower the real wage theycan achieve in negotiations.the real wage that gets negotiated is
w/p=1-2u
where u is the fraction of workforce unemployed
what is the equilibrium fraction of the workforce unemployed???
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