When the possibility for strongly efficient contracts occurs, what will happen?
A) The union and firm negotiate over the employment level but not over the wage.
B) The union and firm negotiate over the wage level but not over the employment level.
C) The labor demand curve must be vertical.
D) Isoprofit lines must be horizontal.
E) Isoprofit lines are parabolas that open upward.

Question

Quizplus · Accepted Answer

When strongly efficient contracts are possible, the union and firm will negotiate over the wage level but not over the employment level. This is because the wage can be adjusted to reflect the marginal productivity of labor, making it the primary focus of negotiations.

When the Possibility for Strongly Efficient Contracts Occurs, What Will