Question

In: Economics

units of labor marginal revenue proudct 0 1 30 2 24 3 18 4 15 5...

units of labor	marginal revenue proudct
0
1	30
2	24
3	18
4	15
5	12
6	10

Assume a firm is a monopsonist that can hire its first worker for $6 but must increase the wage rate by $3 to attract each successive worker (so that the second worker must be paid $9, the third $12, and so on). The marginal revenue product of labor is given in the table .

a. Draw the firm’s labor supply and marginal resource cost curves.

Are the labor supply and MRC curves the same or different? If they are different, which one is higher?

b. What is the competitive equilibrium wage rate?

What is the equilibrium level of employment?

c. What is the wage rate under monopsonistic conditions?

What is the equilibrium level of employment under monopsonistic conditions?

By how much does the monoposonist reduce wages below the competitive wage?

By how much does the monopsonist reduce employment below the competitive level?

Expert Solution

a. Draw the firm’s labor supply and marginal resource cost curves.

The graph is shown below. Labor supply is a function of wage rate. MRC is constructed from TRC where TRC = labor supply x wage rate.

Are the labor supply and MRC curves the same or different? If they are different, which one is higher?

They are different MRC is higher than Labor supply because slope of MRC is twice the slope of labor supply

b. What is the competitive equilibrium wage rate?

It is $15 per hour where labor demand is equal to labor supply

What is the equilibrium level of employment?

It is 4 workers

c. What is the wage rate under monopsonistic conditions?

It is $12 because MRC = labor supply results in 3 workers hired and for 3 workers, a total of $12 is demanded by the labor supply function.

What is the equilibrium level of employment under monopsonistic conditions?

It is 3 workers

By how much does the monoposonist reduce wages below the competitive wage?

It reduces the wage by $3 per hour

By how much does the monopsonist reduce employment below the competitive level?

It reduces employment by 1 worker

Rahul Sunny answered 2 years ago

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