Calculating marginal expenses of labor.
1. A monophony can hire one worker at a wage of $5, two workers at a wage of $6 each, three workers at $7 each, and so on (each added worker adding one dollar to the wage rate). If the marginal revenue product for all workers is $16, what wage will it pay (this is the same as determining how many workers will the firm hire)? Hint: Calculate the MEL and compare it to MRPL.
2. Assume, the government requires lifeguards to buy $1 of health insurance per hour worked. What happens to employment and wages of lifeguards? Explain and show graphically.