1. As we noted in class, most members of labor unions work in the public sector, industries that are regulated, or industries in which production is concentrated into a few firms. This problem is designed to help you understand some of the factors behind the relatively small role played by labor unions in other industries.
A. Consider a perfectly competitive industry with many firms that produce the same product. Recall that each firm in a perfectly competitive industry faces a flat (horizontal) demand for its product. That is, if the firm were to raise its price it would not be able to sell any of its output.
i. If one of those firms becomes unionized and wages consequently rise, what effect does the wage increase have on the firm’s marginal cost curve? What will happen to the amount of output the firm wishes to produce?
ii. What effect would unionization have on the amount of labor the firm uses in the short run and in the long run?
B. Now say some firm produces a good at multiple plants, some of which are unionized and some of which are not. If demand for that firm’s product rose, would the firm increase production more at the unionized plants or the non-union plants? Why?
C. Right to work laws in several states (mostly in the South and the Rocky Mountain regions) make it more difficult to organize labor unions there. Explain how the existence of these laws can make it difficult to organize unions in other regions of the country as well.