Suppose that there are two groups of workers: A-types and B-types. The value of

Question

Suppose that there are two groups of workers: A-types and B-types. The value of the marginal product of labor (VMP_E) of the workers is the same and is depicted below. Suppose that non-discriminatory firms hire both types of workers at a wage of $8. Suppose that owners of some firms practice taste-based discrimination against B-type workers and their discrimination coefficient (distaste parameter) is $6. If the discriminatory owners are forced to hire B-types (either because of hiring rules or because of the relatively high supply of B-type workers), how many will they hire? How much profit is sacrificed by this discrimination? Assuming that the market is competitive, what will happen to these firms in the long run?

Explanation / Answer

Before discrimination: they will hire where VMP = W

at $8 they will hire 24 L

Profit = (24*8) = 192

After discrimination:

at $6 they will hire 28L =

Profit = (28*6) = 168

Profit sacrificied: 192-168 = 24

As the wages are lower for B-Types, eventually supply will be lower and in the long rum it will be back to $8 where wages in both the market are equal as B- types will not be willing to work at lower wages.

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

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