# units of labor marginal revenu

 units of labor marginal revenue proudct 0 1 30 2 24 3 18 4 15 5 12 6 10

Assume a firm is a monopsonist that can hire its first workerfor \$6 but must increase the wage rate by \$3 to attract eachsuccessive worker (so that the second worker must be paid \$9, thethird \$12, and so on). The marginal revenue product of labor isgiven in the table .

a. Draw the firm’s labor supply and marginal resource costcurves.

Are the labor supply and MRC curves the same or different? Ifthey are different, which one is higher?

b. What is the competitive equilibrium wage rate?

What is the equilibrium level of employment?

c. What is the wage rate under monopsonistic conditions?

What is the equilibrium level of employment under monopsonisticconditions?

By how much does the monoposonist reduce wages below thecompetitive wage?

By how much does the monopsonist reduce employment below thecompetitive level?

a. Draw the firm’s labor supply and marginal resource costcurves.

The graph is shown below. Labor supply is a function of wagerate. MRC is constructed from TRC where TRC = labor supply x wagerate.

Are the labor supply and MRC curves the same or different? Ifthey are different, which one is higher?

They are different MRC is higher than Labor supply because slopeof MRC is twice the slope of labor supply

b. What is the competitive equilibrium wage rate?

It is \$15 per hour where labor demand is equal to laborsupply

What is the equilibrium level of employment?

It is 4 workers

c. What is the wage rate under monopsonistic conditions?

It is \$12 because MRC = labor supply results in 3 workers hiredand for 3 workers, a total of \$12 is demanded by the labor supplyfunction.

What is the equilibrium level of employment under monopsonisticconditions?

It is 3 workers

By how much does the monoposonist reduce wages below thecompetitive wage?

It reduces the wage by \$3 per hour

By how much does the monopsonist reduce employment below thecompetitive level?

It reduces employment by 1 worker

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