Economics 4340 Labor Economics Isaac McFarlin University of Texas at Dallas Problem Set #3: 1. The following table pertains to data for a given firm. Labor Output Price (D1) Price (D2) 0 0 $10.00 $10.00 1 15 10.00 9.50 2 29 10.00 9.00 3 42 10.00 8.50 4 54 10.00 7.50 5 65 10.00 6.50 6 75 10.00 5.50 a. Assuming the firm faces a perfectly competitive market, construct and graph this firm’s short run labor demand curve. Which price column would you use to calculate this? Why? b. Assuming the firm faces an imperfectly competitive market, construct and graph this firm’s short run labor demand curve. Which price column would you use to calculate this? Why? 2. Explain how marginal revenue product is derived. Why is the MRP curve the firm’s short-run labor demand curve? Explain how and why the labor demand curves for the perfectly competitive seller and the imperfectly competitive seller differ. 3. Given the data in Table A, complete the labor demand schedule shown in Table B. Contrast this schedule to the value of marginal product schedule that would exist given these data. Explain why the labor demand and VMP schedules differ. Table A Table B Labor Demand Schedule Inputs Total Product Quantity of Labor Product Price Wage Rate Demanded 0 0 $ 1.10 $ 18.00 1 17 $ 1.00 $ 14.00 2 32 $ 0.90 $ 11.00 3 45 $ 0.80 $ 6.00 4 55 $ 0.70 $ 2.00 5 62 $ 0.65 $ 1.00 6 68 $ 0.60 4. Employers urge labor unions to accept wage concessions as a means to increase jobs. For a union to do so, however, usually requires approval by a majority of the membership. Given this situation, if a layoff caused 30% of the membership to lose their jobs, would the union vote for a wage concession? How large would the layoff have to be before the union would accept a concession? What influence does the elasticity of demand have on the size of the wage concession that the union would have to agree to in order to preserve the jobs of its members? If demand were highly elastic, how would this affect the union’s attitude toward a concession?