Question

(5pts) The employment of teaching assistants (TAs) by major universities can be characterized as a monopsony. Suppose the Marginal Value (MV) or Marginal Revenue Product of Labor (MRPL) for TAs is given by W = 40,000 – 100N, where W is the wage (as an annual salary), and N is the number of TAs hired. The supply of TAs is given by W = 4,000 + 70N.

(a) (3) If the university takes advantage of its monopsonist position, how many TAs will it hire? What wage will it pay?

(b) (2) If, instead, the university faced an infinite supply of TAs at the annual wage level of $15,000, how many TAs would it hire?

Answer 1

Suppose the demand function or Marginal Revenue Product of Labor (MRPL) for TAs is given by W = 40,000 – 100N. The supply of TAs is given by W = 4,000 + 70N. Total expenditure is WN or TE = 4000N + 70N^2. Marginal expenditure cost MEC = 4000 + 140N

(a) (3) If the university takes advantage of its monopsonist position, how many TAs will it hire? What wage will it pay?

It will equate MEC = MRP to get employment and use N in labor supply to get the wage

40000 - 100N = 4000 + 140N

36000 = 240N

N = 150 TA'a and wage rate = 4,000 + 70*150 = $14500

(b) (2) If, instead, the university faced an infinite supply of TAs at the annual wage level of $15,000, how many TAs would it hire?

Then MEC = Wage supply = $15000 will be fixed

40000 - 100N = 15000

25000 = 100N

N = 250. Hence it would hire 250 TA's