ECO101H1 Chapter Notes - Chapter 11: Defined Contribution Plan, Procyclical And Countercyclical, Marginal Revenue Productivity Theory Of Wages
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ECO101H1 Full Course Notes
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Suppose the firm"s labor demand curve is given by: w = 20 - 0. 01 e, where w is the hourly wage and e is the level of employment. Suppose also that the union"s utility function is given by. Utility maximization requires the absolute value of the slope of the indifference curve equal the absolute value of the slope of the labor demand curve. The absolute value of the slope of the labor demand function is 0. 01. Substituting for e with the labor demand function, the wage that maximizes utility must solve w. 100 w which implies that the union sets a wage of , at which price the firm hires 1,000 workers. 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.