Assume a monopsony uses only one factor, i.e. labor, L, to produce a final good, Q, which is soldin a competitive market at the price p = 1 to maximise profits. The production function of themonopsonist is given by Q (L) = 100L — L². The inverse supply curve for labor is w(L) =220 + 2 L.c. Describe algebraically and graphically what the welfare effects would be of theintroduction of a minimum wage set at the competitive level. Would it improve welfare ifthe minimum wage were set above the competitive wage? Support your answer with agraph and economic intuition.

Monopsony refers to the market structure where only a single buyer exists in the market. Monopsony…

Assume a monopsony uses only one factor, i.e. labor, L, to produce a final good, Q, which is sold in a competitive market at the price p = 1 to maximise profits. The production function of the monopsonist is given by Q(L) = 100L — L². The inverse supply curve for labor is w(L) = 20 + 2 L. c. Describe algebraically and graphically what the welfare effects would be of the introduction of a minimum wage set at the competitive level. Would it improve welfare if the minimum wage were set above the competitive wage? Support your answer with a graph and economic intuition.

Assume a monopsony uses only one factor, i.e. labor, L, to produce a final good, Q, which is sold in a competitive market at the price p = 1 to maximise profits. The production function of the monopsonist is given by Q(L) = 100L — L². The inverse supply curve for labor is w(L) = 20 + 2 L. c. Describe algebraically and graphically what the welfare effects would be of the introduction of a minimum wage set at the competitive level. Would it improve welfare if the minimum wage were set above the competitive wage? Support your answer with a graph and economic intuition.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter16: Labor Markets

Section: Chapter Questions

Problem 16.5P

See similar textbooks

Similar questions

Table 14.13 shows information from the supply curve for labor for a monopsonist, that is, the wage rate required at each level of employment. What is the monopsonists marginal cost of labor at each level of employment? If each unit of labors marginal revenue product is 13, what is the firms profit maximizing level of employment and wage?
B. Consider a firm who sells output at p=10 and has a short run production function Q(L)=20L-L2. Its wage rate function is w=40+2.5L. Compute for the rate of monopsonistic exploitation and interpret the computed value.
Bridge Coal Company is the only employer in a remote and mountainous region of the country, so the firm is the monopsony buyer of labour in the market. If the price of coal increases, then the firm's: A. AE curve shifts leftward. B. AE curve shifts rightward. C. ME and AE curves shift rightward. D. ME curve shifts leftward. E. MV curve shifts rightward.
Assume a firm is a monopsonist that can hire its first worker for $6 but must increase the wage rate by $3 to attract each successive worker. Draw the firm’s labor supply and marginal resource cost curves and explain their relationships to one another. On the same graph, plot the labor demand data of question 2. What are the equilibrium wage rate and level of employment? Why do these differ from your answer to question 9?
The graph below represents the labor supply curve of a monopsonistic firm. If the firm above hired labor at the quantity Q1, what wage rate would it pay? A-W1. B-W2. C-W3. D-W4. E-W5
Question 4 True/False: The supply curve for labor that a monopsonist faces is the supply curve for the industry. Group of answer choices True False
B. Consider a firm who sells output at p=10 and has a short run production function Q(L)=20L-L2. Its wage rate function is w=40+2.5L. Suppose the firm is a monopsonist, how much labor will it hire to maximize profits?