Suppose that management and labor are bargaining over the distribution of excess

Question

Suppose that management and labor are bargaining over the distribution of excess profits amounting to $200 per worker. Suppose that failure to reach an agreement an agreement reduces management’s share of the surplus by 5 percent per round and reduces labor’s share of the surplus by 8 percent per round. There is a potentially unlimited number of negotiating rounds and labor makes the first offer. How much of the excess profits will go to the shareholders?

$70

$55

$120

$114

$86

$70

$55

$120

$114

$86

Explanation / Answer

How much of the excess profits will go to the shareholders?

Solution: $114

Working: 0.57*200 = 114

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