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?

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Expert Solution

Rahul Sunny answered 9 months ago

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