Question

On a separate piece of paper, draw a graph representing demand for workers at a firm with a union.  Label employment on the horizontal axis and dollars on the vertical axis.  Draw a demand curve, and two indifference curves for the union, that represent the tradeoff between employment and wages.  One of these indifference curves should be tangent to the firm's demand for labor curve.  Add isoprofit lines to your graph, that represent the firm's tradeoff between wages and employment.  Isoprofit lines should be maximized at the intersection with the demand curve, but also need to be placed where they are tangent to the union indifference curves.  Draw the contract curve segment on your graph.  Submit in class, or take a picture of your work and submit here.

Answer 1

In the diagram , Employment and wages are shown.U is the indifference curve tangent to the demand curve,U' is the other indifference curve .ZP is the contract curve. If the contract curve is vertical the firm will hire same number of workers that it would have hired in the absence of union.IS is the isoprofit curve.An iso profit curve shows the combination of benefit and wages at a fixed or given level of profit earned by the employer.Thus iso profit curves correspond to a given level of profit .At point E isoprofit and indifference curve is tangent.