In: Economics
This question will concern the demand for
labor.
(a) Show graphically how, under monopsonistic
conditions, a mandated wage can increase the amount of employment
demanded by the firm.
(b) Argue analytically, using the firm’s problem, how
a mandated wage can increase employment demanded by the firm (Hint:
you will need to assume concavity of the production
function)
(c) State some conditions under which a mandated wage
can actually decrease demand for labor under monopsonistic
conditions both in the short run and in the long run.
(d) Show graphically, on the same graph, the changes
in employment corresponding to a wage increase due to a mandated
wage and a shock to labor supply change the employment demanded for
a demand curve and a more inelastic demand curve. Assume we are now
referring to the competitive model.