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?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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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
c) What is the dead weight loss ofmonopsony?
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