Question

Monopsony. The dominant employer in Davis is UCD. Some argue that UCD uses its market power to lower the wages of some of its staff, especially those in lower-skill jobs. Show how this would work, using an inverse supply of labor of w=3+0.2L, where L is the number of hours worked per month by the labor force (in thousands), and w is the wage paid, in dollars per hour. Suppose UCD’s inverse demand for labor is w=18-0.1L.

a) What are the average expenditure and marginal expenditure for labor?

b) If UCD choose to be a monopolist, what are the wage it will offer and the number of hours of work it wishes to hire?

c) Since the UCD staff are unionized, the situation is more likely one of the bilateral monopoly. What would the union's wage and hours demands be?

Answer 1