Figure 14.4.1
A labor union is exercising monopoly power in the labor market.
-Refer to Figure 14.4.1. To maximize total wages paid to workers, the labor union will agree to wage rate:

Question

Quizplus · Accepted Answer

The labor union will want to maximize wages for its members while also ensuring that enough workers are employed to meet market demand. The monopoly power allows the union to set a higher wage rate than the competitive equilibrium at W1S1B0, but setting the wage rate too high could cause employers to hire fewer workers, leading to a smaller pool of union members and potentially lower overall wages. At the wage rate of W₀, the quantity of workers demanded is at Q1, but the wage rate is too low to maximize total wages paid to workers. At the wage rate of W₁, the quantity demanded increases to Q2, but this still falls short of the maximum possible quantity of Q3. At the wage rate of W₃, the quantity demanded falls to Q1 and the wage rate is too high, leading to fewer members in the labor union and lower overall wages. Therefore, the best choice is C) W₂, which allows for a higher wage rate than the competitive equilibrium, while still ensuring that enough workers are employed to maximize total wages paid to workers.

Figure 14.4.1 A Labor Union Is Exercising Monopoly Power in the Labor