3. The market for construction workers is as follows. Labor demand = 400 – 2W Labor...

3. The market for construction workers is as follows. Labor demand = 400 – 2W Labor supply = 10 + 4W W = wage rate in dollars Marginal expense of labor MEL = 2 + L/2 Marginal value product of Labor MVPL = 200 – L/2

3a. If a monoposony is now the only firm in the city hiring workers, how many workers are hired and what is their wage rate?

3b. If the city charges the monopsony $0.50 extra for each worker hires, how many workers are hired and what is the wage rate (use all the original equations). Compare and explain how your answer differs compared to part a.

Solutions

Expert Solution

A) Monoposony Equilibrium at, MEL= MVPL

-2.5+L/2=200-L/2

L=202.5

Ls=10+4w

w=-2.5+L/4

w=-2.5+202.5/4=-2.5+50.625=48.125

B)NEw MEL=-2.5+L/2 +0.5=-2+L/2

New Equilibrium of monoposony,

-2+L/2=200-L/2

L=202

w=-2.5+202/4=-2.5+50.5=48

This nee charge by city lead to decrease Equilibrium labour quantity and Equilibrium wage.

Rahul Sunny answered 1 year ago

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