Each employer faces competitive weekly wages of $1,600 for blacks and $2,400 for

Question

Each employer faces competitive weekly wages of $1,600 for blacks and $2,400 for whites. Suppose employers undervalue the efforts/skills of blacks in the production process. In particular, every firm is associated with a discrimination coefficient d, (0 d 1), such that, although a firm's actual production function is q=10(Eb+Ew), the firm manager acts as if its production function is q=10(1d)Eb+10Ew. Every firm sells its output at a constant price of $280 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 black worker?
b) What is the value of the marginal product of each white worker?
c) Describe the employment decision, output level and profits made by firms for which d = 0.25 and d = 0.75 respectively.

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

Explanation / Answer

a) Value of marginal product is arrived at when you multiply Marginal product of factor by Price i.e VMP = MP(Factor)* Price. Now given the production function :

Q=10(1-d)Eb+10Ew, we can calculate MP for Ew and Eb seperately

MP for Eb = 10-10d and accordingly VMP (Black) = 2800-2800d

b) Similarly VMP for whites = 10*280 = 2800

Now since D<1 , we can say that VMP for blacks will be lower than VMP for whites.

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.