3. Each employer faces competitive weekly wages of $1,800 for whites and $1,200 for blacks. Suppose that employers may undervalue the efforts/skills of blacks in the production process. In particular, every firm is associated with a discrimination coefficient, d, where 0 ≤ d ≤ 1. In particular, although a firm’s actual production function is Q = 10(Ew + EB), the firm’s manager acts as if its production function is Q = 10EW + 10(1 − d)EB where EW is white employment and EB is black employment. Every firms sells its output at a constant price of $200 per unit up to a weekly total of 150 units of output. No firm can sell more than 150 units of output without reducing its price to $0.
(a) Describe the employment decision made by firms with d = 0.6. (5 marks)
(b) For what value(s) of d is a firm willing to hire both blacks and whites? (5 marks)