Question

Each employer faces competitive weekly wages of $2,000 for whites and $1,400 for blacks. Suppose employers under-value the efforts/skills of blacks in the production process. In particular, every firm is associated with a discrimination coefficient, d where 0 ? d ? 1. In particular, although a firm’s actual production function is Q = 10(E_W +E_B), the firm manager acts as if its production function is Q = 10E_W + 10(1–d)E_B. Every firm sells its output at a constant price of $240 per unit up to a weekly total of 150 units of output. No firm can sell more than 150 units of output without reducing its price to $0.

(a) What is the value of the marginal product of each white worker?

(b) What is the value of the marginal product of each black worker?

(c) Describe the employment decision made by firms for which d = 0.2 and d = 0.8 respectively.

(d) For what value(s) of d is a firm willing to hire blacks and whites?

Answer 1