Monopsony and Concentration in the Labor Market: Evidence ...
Monopsony Problem
1
Monopsony Problem Consider a monopsonistic labor market. The equation of the supply curve of labor or average cost of labor is AC L = W = 120 + 2L, where L is the amount of labor used per day and W is the wage per day. The marginal revenue product of labor is MRP L = 240 – 2L. a. Graph the AC L and MRP L curves. b. Determine algebraically the intersection of AC L and MRP L ; show those numbers on your graph. c. Determine the equation for the total cost of labor TC L . d. Determine the equation for the marginal cost of labor MC L ; add the MC L curve to your graph. e. Determine the profit-maximizing employment level and the profit-maximizing wage level and show on your graph. f. If a minimum wage of $180 per day were imposed, what would the new employment level be? How does this employment level compare to the level prior to the minimum wage? g. If a minimum wage of $200 per day were imposed, what would the new employment level be? How does this employment level compare to the level prior to the minimum wage?
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Transcript of Monopsony Problem
Monopsony Problem
Monopsony ProblemConsider a monopsonistic labor market. The equation of the supply curve of labor or average cost of labor is ACL = W = 120 + 2L, where L is the amount of labor used per day and W is the wage per day. The marginal revenue product of labor is MRPL = 240 2L.
a.Graph the ACL and MRPL curves.
b. Determine algebraically the intersection of ACL and MRPL; show those numbers on your graph.
c. Determine the equation for the total cost of labor TCL.
d. Determine the equation for the marginal cost of labor MCL; add the MCL curve to your graph.e. Determine the profit-maximizing employment level and the profit-maximizing wage level and show on your graph.
f. If a minimum wage of $180 per day were imposed, what would the new employment level be? How does this employment level compare to the level prior to the minimum wage?
g. If a minimum wage of $200 per day were imposed, what would the new employment level be? How does this employment level compare to the level prior to the minimum wage?
