1. LABOR MARKET DISCRIMINATION. (20 points in section)
A. Suppose there are two types of workers. Type A and Type B. Suppose the market wage for Type A workers is $20 while the wage for Type B workers is $16. Moreover, there are only 30 Type B persons in the labor pool, the rest of the labor supply consists of Type A persons. Furthermore, firms differ only with respect to their tendencies to be prejudiced about Type B workers. Suppose a firm sells output in a competitive market at a price of $4 per unit of output, recons it should produce 100 units of output, and faces the following production function:
Q = 5LA + 5LB
where Q is output, LA is the number of type A workers, and LB is the number of type B workers.
1. Are type A workers more productive than Type B workers? Demonstrate and explain (5 points)
2. Suppose Atlas Manufacturing Co seeks to minimize cost. How many workers of each type would it hire? Demonstrate and explain (5 points)
3. Suppose Ajax Enterprises exhibits a discrimination coefficient of 4. How many workers of each type would it hire? Demonstrate and explain (5 points)
4. Suppose Hidebound Industries exhibits a discrimination coefficient of 6. How many workers of each type would it hire? Demonstrate and explain. (5 points)