Utility function... There exist two types of workers in the market,distinguished by some characteristic that has norelationship to labor market productivity. Thereare 100 type 1 workers and 100 type 2 workers.The productivity of per hour worked of each typeis equal to 2. The product price is fixed at p = 2.Each type of worker has the labor supplyfunction hi1+ Wi.-Assume that the labor market is inhabited by amonopsonist. The monopsonist's productionfunction is q = H₁ + H₂. The objective of themonopsonist is to maximize his utility, which isgiven byU = p(H₁ + H₂) − H₂ - W₁ H₁ - w₂ H₂,-whereHį = 100(1+wi).The term -H₂ in the utility function of themonopsonist reflects a distaste for havingemployees of type 2. What are themonopsonist's utility-maximizing choices of w₁and w₂?

In an economy, the wage rate of the financial system is decided via way of means of the interaction…

Answered: The term - H₂ in the utility function…

The term - H₂ in the utility function of the monopsonist reflects a distaste for having employees of type 2. What are the monopsonist's utility-maximizing choices of w₁ and w₂?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter16: Labor Markets

Section: Chapter Questions

Problem 16.5P

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Question

Utility function...

There exist two types of workers in the market,
distinguished by some characteristic that has no
relationship to labor market productivity. There
are 100 type 1 workers and 100 type 2 workers.
The productivity of per hour worked of each type
is equal to 2. The product price is fixed at p = 2.
Each type of worker has the labor supply
function hi
1+ Wi.
-
Assume that the labor market is inhabited by a
monopsonist. The monopsonist's production
function is q = H₁ + H₂. The objective of the
monopsonist is to maximize his utility, which is
given by
U = p(H₁ + H₂) − H₂ - W₁ H₁ - w₂ H₂,
-
where
Hį = 100(1+wi).
The term -H₂ in the utility function of the
monopsonist reflects a distaste for having
employees of type 2. What are the
monopsonist's utility-maximizing choices of w₁
and w₂?

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