Problem

1. Suppose blacks and whites are not perfect substitutes in production. The firm would like to minimize the costs of producing 100 units of output. Show that employers who discriminate against blacks earn lower profits. Does your conclusion depend on whether the market-determined black wage is lower than the white wage?

2. Suppose that black and white workers are complements in the sense that the marginal product of whites increases when more blacks are hired. Suppose also that white workers do not like working alongside black workers. Does employee discrimination lead to complete segregation? Does it create a wage differential between black and white workers?