Answer to Question #140518 in Microeconomics for ased

Question

A maximizing worker with u(z, f) = z^1/2f^1/2 earns 60 dollars per day in non-labour income and is paid a wage of 5 dollars per hour. How many hours will she work. If she joins a union she will be paid a wage of 20 dollars per hour but she will have to pay a membership fee. What is the maximum daily fee she would pay to join this union?

Answer 1

The reservation wage is: rw = 60/24 = 2.5. So, she will decide to work and will work at least 8 hours per day. If she joins a union, then the maximum daily fee she would pay to join this union is (20 - 5)×8 = $120.