Question

In: Economics

w = 50,000 + 10,000L where w is wages, L is the number of players The...

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?

Expert Solution

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

Rahul Sunny answered 2 years ago

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