Suppose that the supply curve for the labour to a firm is given by L = 100w and the marginal expense of labour curve is given by MEL =L/50
where w is the market wage. Suppose also that the firms demand for labour (marginal revenue product) curve is given by L = 1, 000 − 100MRPL.
a) If the firm acts as a monopsonist, how many workers will it hire in order to maximise profits? What wage will it pay? How will this wage compare to the MRPL at this employment level?
b) Assume now that the firm must hire its workers in a perfectly competitive labour market. How many workers will the firm hire now? What wage will it pay?
c) What is the deadweight loss from the labour market for a monopsonist? Graph your results and show the Deadweight loss.