Problem
Consider the situation of a monopoly union confronting a labour monopsonist. Suppose the labour market is characterized by the following equations of supply and demand: W=100-3QL d
W=20+2QL s
I. What is the equation for the union's marginal revenue curve?
II. What is the equation for the firm's marginal expenditure (on labour) curve?
III. Illustrate this situation of bilateral monopoly in the diagram on the next page: In addition to the demand and supply of labour curves, be sure to show the union's marginal revenue curve and the firm's marginal expenditure curve, that you have determined above.
IV. In this situation of "bilateral monopoly", what wage would the union like to receive? Identify this on your diagram.
V. What wage would the firm like to pay? Identify this on your diagram.
VI. On what does the final wage that is settled upon, depend? Explain the findings of John Nash, in this regard.
VII. On what does the difference between the wage the union would like and the wage the firm would like, depend?