2) Consider the following labor supply, demand, and marginal wage cost curves. ?=5+? ? = 40...

2) Consider the following labor supply, demand, and marginal wage cost curves. ?=5+? ? = 40 − 3? ??? = 5 + 2? a) Find the labor quantity which will be employed, and the wage which will be paid by a competitive firm. Show on a graph. b) Find the labor quantity which will be employed, and the wage which will be paid by a profit- maximizing monopsonist. Show on a graph.

Solutions

Expert Solution

a) A competitive firm will equate the demand for and labor and supply of labor in order to find the equilibrium wage rate and the quantity of labor

Demand for labor = supply of labor

5+L = 40-3L

4L = 35

L = 8.75

w = 5+L = 5+8.75 = 13.75

The labor demand and supply has been plotted in blue and red color respectively in figure 1. The point where they meet is (8.75, 13.75)

Figure 1

b) A monopsonist will equate labor demand to ??? in order to find the quantity of labor

40-3L = 5+2L

5L = 35

L = 7

w= 19

The labor demand. labor supply and MWC has been plotted in blue, red and black color respectively in figure 2. The point where labor demand and MWC meet is (7, 19).

Figure 2

Rahul Sunny answered 2 years ago

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