A firm’s production function is given by Q = 40ln(EW + EB + 1) where EW and EB are the number of whites and blacks employed by the firm respectively.
Suppose the market wage for blacks is $50, the market wage for whites is $100, and the price of each unit of output is $20.
(a) How many workers of each race would a non-discriminating firm hire? How much profit is earned if there are no other costs?
(b) How many workers of each race would a firm with a discrimination coefficient of 0.6 against blacks hire? How much profit is earned if there are no other costs?
(c) How many workers of each race would a firm with a discrimination coefficient of 1.2 against blacks hire? How much profit is earned if there are no other costs?
