Suppose a firm is a monopsonist with production function f(L) = 12L - 1/2L^2 and the firm can sell it's product in the perfectly competitive national market at price p = 1. This firm needs no capital to make it's product and where L is the quantity of labor employed. Suppose that the local supply of labor is given by S(L) = 3w, where w is the wage. (A) What is the firm's marginal revenue product of labor? MRPL = p(MPL) (B) What is the equilibrium quantity of labor hired by the monopsony firm? (C) What is the wage offered by the monopsonist firm? (D) What would the market equilibrium wage be if the firm was a wage taker instead of a wage setter? (This is the optimal "efficient" wage)
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So, MPL = f'(L) = 24L. The marginal revenue product of labor (MRPL) is the product of the marginal product of labor and the price of the product, which is 1. So, MRPL = p(MPL) = 1*24L = 24L. (B) The monopsony firm will hire labor until the marginal cost of labor Show more…
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