Question - A monopsonist occupies a market in which 10 potential workers live. Each one has a labor supply function given by h(w) = w/2 , where w is the wage rate set by the firm. The firm sells its output in a competitive market, and the price it receives for each unit sold is 10. The firm's production function is y(H) = H, where H is the total amount of labor supplied to the firm.
(a) Find the profit-maximizing wage offer.
(b) If the government imposes a minimum wage of 8 will output in this industry increase, decrease, or stay the same? (Provide a rigorous justification for your response)