Question Two
A coal-mining company is the only employer in town, and faces this supply curve for labor:
W = 48 + ( 72/2000 )L
where w is the daily wage, in dollars, and L is the number of workers employed. The company faces this demand curve for coal:
P = 60 − ( 9/ 4000 )Q
where p is the price of coal, per ton, and Q is the number of tons sold per day. Coalminers produce 8 tons of coal each, per day, regardless of the number hired. The mining company maximizes profit.
a) How many workers will be hired, and how much profit will be made?
b) Suppose a union is formed, which sets a wage of $120 per day. At this wage, according to the supply curve given above, 2000 miners are willing to work, and the company is free to hire as many of these as it wants. How many will be hired, and how much profit will be made?
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