Question

Consider the case of a monopsonist who is the only employer in an isolated town. There...

Consider the case of a monopsonist who is the only employer in an isolated town. There are 100 individuals who live in the town and each has a utility function given by

u(c,l) = 0.25ln(l)+ 0.75ln(c)

where l = leisure ; c = consumption.

The price of consumption is normalized to 1. Each individual has a nonlabor income of 10. Each person's time endowment is 16. Price of the monopsonist's good is 20. The monopsonist only uses labor in production and has production technology: f(k.l) = l

Where l is the total number of labor hours worked.

a) Find wage, labor demanded, and output of monopsonist

b) How much labor will the monopsonist demand with a minimum wage of $5.

c) How about a minimum wage of $25.

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