A non-discriminating monopsonist faces the following inverse supply curve:

W = L^(3/2)

The monopsonist’s production function is equal to the following:

Q = 100L^(1/2)

The monopsonist sells its output in a perfectly competitive market for P = 5. How many workers are employed? What is the wage that the workers are paid?

Expert Solution

MPL = dQ/dL = 100 x (1/2) / L^1/2 = 50 / L^1/2

Profit is maximized when (P x MPL) = W

5 x (50 / L^1/2) = L^3/2

250 / L^1/2 = L^3/2

L² = 250

L = 15.81

W = (15.81)^3/2 = 62.87

Rahul Sunny answered 2 years ago

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