
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Transcribed Image Text:Unit 5 exam free response portion
1. Assume the following information is for a monopsony in a small Idaho town:
ACDC Poster Inc.
Number of
Workers
0
1
Wage rate
(per hour)
$4.00
4.50
5.00
5.50
6.00
7.00
8.00
9.00
10.00
2
D. If the price for each output were $5:
i.
ii.
3456
7
8
Total
Product
0
20
50
70
80
86
88
89
87
A. Given the information, what is the marginal physical product of the 4th worker?
B.
Explain why the marginal physical product increases, decreases, and then goes negative. What is this
called and why does it happen?
C. Assuming that the firm cannot use wage discrimination, what is the marginal resource cost of the
3rd worker? How did you calculate it?
What would be the marginal revenue product of the 8th worker?
How many workers will this monopsony hire and at what wage rate? Why?
E. How would this market's wage rate and employment level be different if they were in a perfectly
competitive labor market?
F. Draw and properly label a generic monopsonistic labor market, including MRC, MRP, demand, and
supply. Label the equilibrium for monopsony.

Transcribed Image Text:2. Initially a country's labor market is competitive and in long-run equilibrium. Now assume that new
workers enter the labor market.
A) Assuming no other changes, explain how the increase in the number of workers will affect each of the
following in the short run:
i. The wage rate of workers
ii. The costs of production for a typical firm
iii. The price of goods produced by the workers
B) Assume that the demand for the goods produced by the workers in part A decreases. Explain the
effect of this decrease on each of the following:
i. The price of goods produced by the workers
ii. The demand for labor
iii. The wage rate of workers
C) Now assume that legislation requiring the establishment of a national minimum wage is proposed.
Explain at what level this minimum wage would need to be set to be effective.
D) Explain how the imposition of the minimum wage in part C would affect each of the following
i. The number of workers employed in the labor market
ii. The costs of production for a typical firm
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