A firm produces output, measured by O, which is sold in a market in which the price P=20. The output is produced using only labor as an input; the production function is Q(L) = L. There are many suppliers of labor, and the supply oflabor is determined by W= 2L, where w is the wage rate. The firm is a monopsonist in the labor market. a) How many units of labor will be hired by the monopsonist? What wage rate will the monopsonist pay? What is the monopsonist's profit? b) If the firm behaves like a firm in a perfectly competitive marker, how many units of labor will the firm hire and what wage the firm will pay? What is the firm's profit? c) What is the dead weight loss ofmonopsony?

A firm produces output, measured by O, which is sold in a market in which the price P=20. The output is produced using only labor as an input; the production function is Q(L) = L. There are many suppliers of labor, and the supply oflabor is determined by W= 2L, where w is the wage rate. The firm is a monopsonist in the labor market. a) How many units of labor will be hired by the monopsonist? What wage rate will the monopsonist pay? What is the monopsonist's profit? b) If the firm behaves like a firm in a perfectly competitive marker, how many units of labor will the firm hire and what wage the firm will pay? What is the firm's profit? c) What is the dead weight loss ofmonopsony?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter12: Price And Output Determination: Oligopoly

Section: Chapter Questions

Problem 5E

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A firm produces output, measured by Q, which is sold in a market in which the price P = 20, regardless of the size of Q. The output is produced using only one input, labor (measured by L); the production function is Q(L) = L. There are many suppliers of labor, and the supply schedule is w = 2L, where w is the wage rate. The firm is a monopsonist in the labor market. What wage rate will the monopsonist pay? How much extra profit does the firm earn when it pays labor as a monopsonist instead of paying the wage rate that would be observed in a perfectly competitive