Question
Suppose there is a single employer in the labor market, i.e. a monopsonist. The monopsonist faces...
Suppose there is a single employer in the labor market, i.e. a
monopsonist. The monopsonist faces the (inverse) labor supply curve
given by w = 15 + E and is a price-taker in the market for its
output good, where it faces price p = $5. Suppose the monopsonist's
technology is such that every worker produces 6 units of
output.
(a) What is the marginal cost of employment if the monopsonist is a
non-discriminating one?
(b) what is the equilibrium employment level?
(c) Now suppose the monopsonist is a perfectly discriminating one.
What is the marginal cost of employment?
(d) What is the equilibrium employment level in this case?
(e) How are the employment levels derived in parts (b) and (d)
related? Is this consistent with the theory?
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