Author Question: Consider two firms that are in the same industry and the industry is competitive. Initially each ... (Read 96 times)

jon_i · **on:** Jun 29, 2018

Consider two firms that are in the same industry and the industry is competitive. Initially each firm employees equal amounts of type A and type B labor.

Labor is perfectly mobile between the two firms, and type A and type B labor are perfect substitutes. Diagram separately the equilibrium conditions in the labor markets for type A and type B labor. What must be true about the wages both firms face? Why? Now assume that one of the firms decides not to hire type A labor due to some type of discrimination. What do you think will happen to the type A labor supply for both firms? How do you think the action will affect the wages for type A labor relative to type B? Why?

Question 2

Is the 846 billion that electricity producers would pay for the right to emit greenhouse gasses part of the opportunity cost of producing electricity?

What will be an ideal response?

Juro · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

Wages must be the same in both markets because true mobility forces them to be. Workers would leave the discriminating firm and migrate to the other firm. The wages for type A workers would initially fall as the demand for type A workers falls. Demand for type B workers would increase driving up B's wages. The non-discriminating firm would increase demand for type A workers because of their relatively cheaper wage and decrease demand for type B workers because of their higher wages. The wages would again be the same, but the workers would be sorted to different firms. The discriminating firm would hire more B, while the non-discriminating firm would hire more A.

Answer to Question 2

To the extent that the 846 billion pays for the cost that greenhouse gasses impose on society (by way of forgone production of other goods and services), the 846 billion is part of the opportunity cost of generating elec-tricity.