Question

You are given the following information about a​ monopsonist: The demand is P=25-.25Q

the average expenditure curve is

AE =.5Q,

and the marginal expenditure curve is

ME=1Q

The quantity​ (Q) is in thousands of units.

Given the information​ above, how much will the monopsonist​ purchase, and how much will it​ pay? ​

Answer 1

ANSWER:-

A Monopsony focuses entirely upon the buyer side of the story and it refers to a market of single buyer and many sellers

To maximize profits in a monopsony, the firm will find a level of production where marginal valve is equal to the marginal expenditure of an input(ME)

The Demand function is given by,

P=25-0.25Q

The average expenditure curve is

AE= 0.5Q ---------------------(1)

The marginal expenditure curve is

ME=1Q -----------------------(2)

Equating with equation (1) with (2)

25-0.25Q=1Q

1.25Q=25

Q=20

thus,the quantity demanded under the Monopsonist Q=20

substitute Q=20 into the equation (1) to get

P=0.5Q

P=0.5*20

P=$10  

under Monopsony,the quantity demanded is Q=20

The unit price is P=$10

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