Suppose the firm’s production function is given by: (15) q = 10 x (square root of: Ew + Eb)
It can be shown that the marginal product of labor is then given by: MPe = 5 divided by (square root of: Ew + Eb)
Suppose that the market wage for black workers is $10, the market wage for white workers is $20, and the price of each unit of output is $100.
(a) How many workers would a firm hire if it does not discriminate? How much profit does this nondiscriminatory firm earn if there are no other costs?
(b) Consider a firm that discriminates against blacks with a discrimination coefficient of 0.25. How many workers does this firm hire? How much profit does it earn?
(c) Finally, consider a firm that has a discrimination coefficient equal to 1.25. How many workers does this firm hire? How much profit does it earn?