Labor Economics 5th Edition by George Borjas

Exercise 19

Suppose the firm's production function is given by
,
where E w and E b are the number of whites and blacks employed by the firm respectively. It can be shown that the marginal product of labor is then
.
Suppose the market wage for black workers is $10, the market wage for whites is $20, and the price of each unit of output is $100.
(a) How many workers would a firm hire if it does not discriminate How much profit does this non-discriminatory firm earn if there are no other costs
(b) Consider a firm that discriminates against blacks with a discrimination coefficient of.25. How many workers does this firm hire How much profit does it earn
(c) Finally, consider a firm that has a discrimination coefficient equal to 1.25. How many workers does this firm hire How much profit does it earn