Suppose that management and labor are bargaining over the distribution of excess profits amounting to $200 per worker. Suppose that failure to reach an agreement an agreement reduces management's share of the surplus by 5 percent per round and reduces labor's share of the surplus by 7 percent per round. If there is an unlimited number of negotiating rounds, what percentage of the excess profits should management offer labor in the first round?
A) Around 38 percent.
B) Around 43 percent.
C) Around 57 percent.
D) Around 62 percent.
E) Around 74 percent.

Question

Quizplus · Accepted Answer

Management should offer labor around 43 percent of the excess profits in the first round to ensure that both parties are better off reaching an agreement immediately rather than continuing to negotiate and suffer reductions in their shares.

Suppose That Management and Labor Are Bargaining Over the Distribution