In: Economics
w = 50,000 + 10,000L
where w is wages, L is the number of players
The demand for players is given by the Marginal Revenue Product:
MRP = 500,000 – 20,000L
The Marginal Factor Cost to the club is :
MFC = $50,000 + 25,000L
If the NFL labor market were competitive, what would be the
equilibrium number of players employed?
If the NFL labor market were competitive, what would be the equilibrium wage of a player?
We know that NFL labor market is a monopsony. Under a monopsony, what is the equilibrium number of players employed?
Under a monopsony, what is the equilibrium wage of a player?
The labor supply equation: w = 50,000 + 10,000L
The labor demand equation: MRP = 500,000 – 20,000L
Under the conditions of perfect competition, the equilibrium is given by w = MRP
50000 + 10000L = 500000 - 20000L
30000L = 450000
L = 15
Thus, the equilibrium number of players employed = 15
The equilibrium wage of a player = w = 50,000 + 10,000L = 50,000 + 10,000*15
=$ 2,00,000
Hence, under perfect competition, the equilibrium wage of a player is $2,00,000
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Now, consider that the labor market is a monopsony market.
The equilibrium is given by MFC = MRP
50,000 + 25,000L = 500,000 – 20,000L
45000L = 450000
L = 10
Under a monopsony, the equilibrium number of players employed is 10
The equilibrium wage of a player follows from the labor supply curve. That is,
w = 50,000 + 10,000L
w = 50,000 + 10,000*10
w = 150000
Hence, under a monopsony, the equilibrium wage of a player is $1,50,000