Question

Suppose a firm is the sole employer in town, facing a labor supply curve w(L) =...

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.

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Answer #1

in Monopsony

MRPL = ME ( Marginal expenditure Curve )

w= 2L

So total expenditure TE = wL

= 2L2

ME = dTE/dL = 4L

So, at eqm,

200-L = 4L

200= 5L

L*= 40,

wages ( from supply curve ) = 2*40 = 80

CS =

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