Suppose a monopsonist's demand for labor can be written as VMP=40-0.004E. Labor is supplied to the...

Suppose a monopsonist's demand for labor can be written as VMP=40-0.004E. Labor is supplied to the firm according to w=5+0.01E.

a. suppose the monopsony firm can pay different workers with different wages, how much labor will the firm hire and at what wage?

b. how does the answer in question a compare to the equilibrium wage and employment in a perfectly competitive labor market?

c. suppose now that the firm must pay the same wage to all its workers. The firm's marginal cost of hiring workers is given by MC=5+0.02E. How much labor will the firm hire and at what wage?

d. how does the equilibrium outcome in part 3 compare to the perfectly competitive case?

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Expert Solution

Rahul Sunny answered 4 weeks ago

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