price. The marginal revenue product equals the marginal product of labor multiplied by the marginal

revenue.

b. A profit-maximizing firm will hire workers up to the point where the market wage equals the marginal

revenue product. If the going market wage is $20, in this scenario, the profit-maximizing level of

employment is 4 because at that point, the marginal revenue product is $20.

3. a. With no union, the equilibrium wage rate would be $18 per hour and there would be 8,000 bus drivers.

b.

If the union has enough negotiating power to raise the wage to $4 per hour higher than under the

original equilibrium, the new wage would be $22 per hour. At this wage, 4,000 workers would be

demanded while 10,000 would be supplied, leading to an excess supply of 6,000 workers.

4. Unions have sometimes opposed new technology out of a fear of losing jobs, but in other cases unions have
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