Suppose the union in problem 1 has a different utility function. In particular, its utility function is given by:
U = (w - w*) ( E
where w* is the competitive wage. The marginal utility of a wage increase is still E, but the marginal utility of employment is now w - w*. Suppose the competitive wage is $8 per hour. What wage would a monopoly union demand? How many workers will be employed under the union contract? Contrast your answers to those in problem 1. Can you explain why they are different?