Question
In: Economics
ABC (American bread company) is a competitor in the product market, but a monopsonist in the...
ABC (American bread company) is a competitor in the product market, but a monopsonist in the labor market. ABC's production function is Q = 30L - 0.5L2 . Market demand for bread is Q = 1000 - 5P and supply is Q = -20 + 250P. The market supply of labor is W = 2L.
1. Derive the unconditional demand for labor for ABC.
2. Suppose ABC does not exploit its monopsony power (acts as a competitor in the labor market). Compute the equilibrium W and L, Employee Surplus(ES) and Economic Rent(ER).
3. Suppose ABD DOES exploit its monopsony power. Compute the equilibrium W and L, Employee Surplus(ES) and Economic Rent(ER).
4. Find the DWL resulting from ABS's exploitation of monopsony power.
5. If the government imposes full coverage minimum wage at $35, what is L, ES, ER now? Who gains who loses compared to when ABC exploits its monopsony power. What is the "net" gain?
Solutions
Rahul Sunny answered 1 year agoRelated Solutions
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