Answer to Question #109820 in Macroeconomics for armita

Question

(a) What is the proÖt-maximizing amount of labor for this monopson- istic Örm? What wage will it pay each unit of labor? Illustrate your answer diagrammatically and explain your result intuitively.
(b) Show the wage and the employment level that would prevail under perfect competition. If there is a deadweight loss under monop- sony, identify the area that represents it in a diagram.
(c) Let wmin be the minimun wage imposed by the government, Use the diagram in part (a) and discuss the e§ect of minimum wage on the wage and employment level. If there is a deadweight loss, identify the area that represents it. Is it smaller or larger?
(d) Suppose Company X is able to practice the first-degree wage dis- crimination. Whatistheemploymentlevelinthiscase? Identify it in the same graph. Is there any deadweight loss?

Answer 1

(a) A monopsonist employer maximizes profits by choosing the employment level L, that equates the marginal revenue product (MRP) to the marginal cost MC.

(b) The wage and employment will be lower then under perfect competition, the deadweight loss will occur.

(c) If the minimun wage is imposed by the government, then the wage will increase, but the employment level will decrease. The deadweight loss will occur.

(d) If company X is able to practice the first-degree wage discrimination, then the employment level will increase, and there will be no deadweight loss.