Problem
Maximizing Labor Income. Consider a union that faces a linear demand for its workers. The vertical intercept is $40 and the slope is $0.20 per worker, so the horizontal intercept is 200 workers. (Related to Application 1 on page 709.)
a. The union faces a trade-off between the wage and employment: For every $2 increase in the wage, employment decreases by workers.
b. Suppose the union tentatively picks a wage of $30, where the elasticity of demand for labor is 3.0 (in absolute value). If the union decreases the wage by 5 percent, by how much will the quantity of labor demanded increase? Will total labor income increase or decrease?
c. Suppose the union s objective is to maximize total labor income. What is the income-maximizing wage and quantity of labor demanded?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.