Problem
1. The demand for labor by an industry is given by the curve L = 1200 - 10w, where L is the labor demanded per day and w is the wage rate. The supply curve is given by L = 20w. What is the equilibrium wage rate and quantity of labor hired? What is the economic rent earned by workers?
2. Using the same information as in Exercise 1, suppose now that the only labor available is controlled by a monopolistic labor union that wishes to maximize the rent earned by union members. What will be the quantity of labor employed and the wage rate? How does your answer compare with your answer to Exercise 1? Discuss. (Hint: The union's marginal revenue curve is given by MR = 120 - 0.2L.)
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.