Question

Assume labor market demand is given by: lD = 10 – w and labor market supply by: lS = w – 2. Suppose that a union has a monopoly in the supply of labor. Suppose also that the goal it has decided to pursue is to maximize employment of its members. In this case, the quantity of labor it will offer is [l].

Answer 1

Here labor market forms a monopoly and market demand for labour is given which is aggregate value of marginal product (VMP) and average revenue (AR) also

labour demand curve

Now

The supply function shows the marginal cost to the union. The wage in the market depends on the goal of the union. In this case union decided to pursue is to maximize the wage bill. If the union aima at that it must set the wage level at which MR is zero.

Now

Therefore 5 unit of labour it will offer. The following diagram shows the fact