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14.3 • Market Power on the Supply Side of Labor Markets: Unions 339

for manufacturing cost $200 each. Under these circumstances, the total cost of producing a home exercise

cycle will be lowest if the firm adopts the plan of 50 hours of labor and one machine, as the table shows. Now,

suppose that a union negotiates a wage of $20 an hour including benefits. In this case, it makes no difference to

the firm whether it uses more hours of labor and fewer machines or less labor and more machines, although it

might prefer to use more machines and to hire fewer union workers. (After all, machines never threaten to

strike—but they do not buy the final product or service either.)

In the final column of the table, the wage has risen to $24 an hour. In this case, the firm clearly has an incentive

for using the plan that involves paying for fewer hours of labor and using three machines. If management
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