The city of Unionville can use several different combinations of labor and compu

ID: 1205598 • Letter: T

Question

The city of Unionville can use several different combinations of labor and computers to run its Department of Motor ehicles. For example, files can be kept in file drawers, or on the computer. People can fill out their personal information on a paper form when they enter the office, or on a computer. Driver's tests can be given and scored on paper, or on a computer. Below are three estimates of the mix of labor and computers needed to run the Department of Motor Vehicles. Computers and software cost $2000 each and must be replaced once a year. In a table below three choices of combinations of labor and computers are listed. Use this set of information to answer the following questions. In a non-unionized labor market, the wage for workers at this office will be $24,000 per year. Given this wage, will choice A, B, or C be preferred? A strong union is started and it manages to raise the wage of workers in this office to $40,000. Given this wage, will choice A, B, or C be preferred? Why? Based on your answer to the first two parts of this question, how has the union affected the number of jobs available? Based on your answer to the first two parts of this question, is there reason to believe that a union worker will be able to handle more citizens than a nonunion worker was able to handle before the creation of the strong union? What are some of possible reasons why an average union worker might be more productive than an average nonunion labor with similar skills? Using a supply-and-demand diagram for the labor market, illustrate how a reduction in immigration could improve the wage for low-skill labor.

Explanation / Answer

Answer to the first question:

Workers

Computers

Total cost

Choice A

10 × $24,000 = $240,000

100 × $2,000 = $200,000

$440,000

Choice B

6 × $24,000 = $144,000

160 × $2,000 = $320,000

$464,000

Choice C

3 × $24,000 = $72,000

250 × $2,000 = $500,000

$572,000

The choice which has the minimum total cost should be preferred. Choice A should be preferred, since it has the minimum total cost compare to other choices.