Question

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?

Answer #1

1. A monopsonist has the production function
Q=4⋅L
and faces the following labor supply and product demand
equations respectively.
W=2+0.05⋅L
P=10−0.025⋅Q
How much labor should the firm hire in order to maximize profits
if they mark their price 300% above marginal cost? Answer is not
10
2.
A monopsonist has the production function
Q=4⋅L
and faces the following labor supply and product demand
equations respectively.
W=2+0.05⋅L
P=10−0.025⋅Q
What wage rate should the firm pay in order to maximize profits
if...

A monopsonist has the production function
Q = 4 ⋅ L
and faces the following labor supply and product demand
equations respectively.
W = 2 + 0.05 ⋅ L
P = 10 − 0.025 ⋅ Q
How much labor should the firm hire in order to maximize profits
if they mark their price 300% above marginal cost?

A monopsonist in the labor market has
A.
a downward sloping marginal revenue product curve.
B.
an upward sloping labor supply curve.
C.
a perfectly elastic labor supply.
D.
a decreasing average variable cost.

Suppose a firm is the sole employer in town, facing a labor
supply curve w(L) = 2L. This monopsony is a price taker in the
output market and has demand for labor DL= 200 –L (this is the
marginal revenue product of labor). Calculate the total L demanded,
producer surplus, consumer surplus, and DWL for this monopsony and
compare these results to perfect competition.

Each employer faces competitive weekly wages of $2,000 for
whites and $1,400 for blacks. Suppose employers under-value the
efforts/skills of blacks in the production process. In particular,
every firm is associated with a discrimination coefficient, d where
0 ? d ? 1. In particular, although a firm’s actual
production function is Q = 10(EW
+EB), the firm manager acts as if its
production function is Q = 10EW +
10(1–d)EB. Every firm sells its output
at a constant price of...

Apple Mountain Pie Company makes apple pie filling for the
consumer market. They are the only firm in the town of Walnut Hills
and they, therefore, face an upward sloping labor supply curve: Es
= 20w − 120, where E is the number of workers hired each hour and w
is the hourly wage rate. Thus, Apple Mountain faces an upward
sloped marginal cost of labor curve of MCe = 6 + 0.1E. For
simplicity, assume a perfectly elastic labor...

1. Suppose a particular pesticide is sold in an unregulated
perfectly competitive market, where the inverse market supply curve
is P = 1 + 0.01QS and the inverse market demand curve is
P = 8– 0.04QD where the quantity is in millions of
gallons per year and the price is in dollars per gallon. Suppose
that the external marginal cost of pesticide depends on the
quantity of pesticide consumed as follows: EMC =
0.01Q
a. What is the market...

A monopsonist labor market has the following output and
total factor cost of labor data (total factor cost=
TFC).
MONOPSONIST
Workers (n)
1
2
3
4
5
6
7
8
Total Physical Product
(TPP)
0
19
27
34
40
45
49
52
Total Factor Cost
(TFC)
12
26
42
60
80
102
126
152
A. Number hired = 7; wage = $24
B. Number hired = 5; Wage = $12
C. none of the above
D. Number hired = 7;...

1. Suppose a monopolist faces the demand for its good or service
equal to Q = 130 - P. The firm's total cost TC = Q2 +
10Q + 100 and its marginal cost MC = 2Q + 10. The firm's profit
maximizing output is
2. Suppose a monopolist faces the demand for its good or service
equal to Q = 130 - P. The firm's total cost TC = Q2 +
10Q + 100 and its marginal cost MC...

1. Suppose a monopolist faces an inverse demand function of P =
150 ? 2Q. The firm’s cost functions is 30Q.
(a) What is the firm’s marginal cost? Average cost? How about
the firm’s marginal revenue?
(b) What would the firm charge if they were a single price
monopolist?
(c) What is the consumer surplus, producer surplus, and dead
weight loss.
(d) Suppose the monopolist is able to perfectly price
descriminate, what are the consumer surplus, producer surplus, and
dead...

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