EBK INTERMEDIATE MICROECONOMICS AND ITS
12th Edition
ISBN: 9781305176386
Author: Snyder
Publisher: YUZU
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Question
Chapter 13, Problem 8RQ
a
To determine
ME =w when a firm is a price taker in the labor market is to be evaluated.
b
To determine
To find: Labor supply curve when it is inelastic ME>w
c
To determine
The gap between ME and w is larger the smaller is e.
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Big Cheese Inc. is the only employer in a small town in rural Louisiana and thus acts as a monopsony-that is, a buyer's monopoly. Its main product is
cheddar cheese, which it sells in a perfectly competitive market. The following graph shows the marginal revenue product of labor (MRP) curve it
faces, its labor supply curve, and its marginal factor cost (MFC) curve.
Use the black point (plus symbol) to indicate the quantity of labor Big Cheese Inc. will hire and the wage rate it will pay for its workers.
WAGE RATE (Dollars per hour)
60
57
54
51
48
45
42
36
33
30
27
12
9
H
MRP
MFC
3
0
0 1 2 3 4
5
6
7
8
9
10
QUANTITY OF LABOR (Workers per hour)
Monopsonistic Outcome
Labor Supply
Big Cheese Inc. will hire
workers at a wage rate of $
per hour.
(?)
Which of the following explains why the MFC curve lies above the labor supply curve?
◇ Each worker must be paid benefits in addition to the wage rate.
○ The marginal cost of hiring an additional worker includes not only that worker's wage but also…
Suppose that the Ebay warehouse behaves as a monopsonist in the local labor market.
Assume that its labor supply curve is w(LS) = 4LS and its labor demand curve is w(LD ) = 42.8−2LD.
To maximize its profits:
a. how many units of labor will Ebay hire and
b. what wage will Ebay pay?
Now suppose that the local labor union goes on strike and Ebay is eventually forced to increase the pay of its workers to a competitive wage. What wage would Ebay then have to pay?
c. Find competitive wage
The correct answers are:
a. 4.28
b. 17.12
c. 28.52
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?
Chapter 13 Solutions
EBK INTERMEDIATE MICROECONOMICS AND ITS
Ch. 13.1 - Prob. 1MQCh. 13.1 - Prob. 2MQCh. 13.2 - Prob. 1TTACh. 13.2 - Prob. 2TTACh. 13.3 - Prob. 1MQCh. 13.3 - Prob. 2MQCh. 13.5 - Prob. 1MQCh. 13.6 - Prob. 1MQCh. 13.6 - Prob. 1TTACh. 13.6 - Prob. 2TTA
Ch. 13.6 - Prob. 1.1TTACh. 13.6 - Prob. 2.1TTACh. 13 - Prob. 1RQCh. 13 - Prob. 2RQCh. 13 - Prob. 3RQCh. 13 - Prob. 4RQCh. 13 - Prob. 5RQCh. 13 - Prob. 6RQCh. 13 - Prob. 7RQCh. 13 - Prob. 8RQCh. 13 - Prob. 9RQCh. 13 - Prob. 10RQCh. 13 - Prob. 13.1PCh. 13 - Prob. 13.2PCh. 13 - Prob. 13.3PCh. 13 - Prob. 13.4PCh. 13 - Prob. 13.5PCh. 13 - Prob. 13.6PCh. 13 - Prob. 13.7PCh. 13 - Prob. 13.8PCh. 13 - Prob. 13.9PCh. 13 - Prob. 13.10P
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