Since marginal costs rise when the wage rate rises, the profit maximizing price also rises when the public limit price is elevated, and is likely to remain well above the latter. The entry limiting price will also be raised for potential domestic competition, but unless general inflation permits profit margins to increase proportionately throughout the economy, we might expect the public limit price to approach the entry limit price. The foreign entry limit price would be approached more rapidly, since domestic wage rates do not enter foreign costs directly. Where this approach becomes critical, the industry can be expected to put much emphasis on this as evidence of its sincerity in ``resisting'' the wage pressures of a powerful union, requesting tariff relief after it has ``reluctantly'' acceded to the union pressure.

Whether or not it is in the industry's interest to allow the basic wage rate to rise obviously depends upon the extent to which the public limit price rises in response to a basic wage increase, and the relation of this response to the increase in costs accompanying the wage increase. The extent to which the public limit price is raised by a given increase in the basic wage rate is itself a function of three things: the passage of time, the level of GNP, and the size of the wage increase.

We are abstracting from the fact of strikes here, but it should be obvious that the extent to which the public limit price is raised by a given increase in the basic wage rate is also a function of the show of resistance put up by the industry. The industry may deliberately take a strike, not to put pressure on the union, but in order to ``educate'' the government and the customers of the industry. As a strike continues, these parties increase their pressure on the industry to reach an agreement. They become increasingly willing to accept the price increase that the industry claims the wage bargain would entail.