Question

19. If given a graph of the MRP, MFC, demand and supply for labor curves, how many workers will a firm want to hire? GRAPH IS NOT REQUIRED FOR THIS QUESTION. It is asking you what are the STEPS one must take using the MRP, MFC, and demand and labor supply curves to find out how many workers will a firm hire? This is a conceptional question.

PLEASE ANSWER.

Answer 1

In case we are also given the marginal factor cost besides the usual marginal revenue product curve and the labour supply function, we can observe that there must be a single buyer of labour services, that is, we have a monopsony.

In that case, the monopsony will hire that number of workers which is determined by the intersection of the marginal factor cost curve and the marginal revenue product curve. This is different from competitive market in which marginal revenue product intersects with the labour supply function and therefore a greater number of workers are hired.