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Profit-maximizing monopsonist

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EXTRA PRACTICE #1: Profit-maximizing monopsonist

A monopsonist faces a labor supply curve given by LS = -300 + 0.01W , where W is the annual salary.

  1. What is the lowest salary the firm can pay yet still induce one worker to want to work for the firm? What is lowest salary the firm must pay to induce two workers to work for the firm?
  2. What is the marginal cost to the firm of adding a second worker given that it must pay all employees the same wage? Is this greater than, less than, or equal to the wage paid to each of the two workers?
  3. In general, the marginal cost of hiring additional labor for this firm is given by MWC = 29, 900 + 200L. If the firm's labor demand curve is given by LD = 398 - 0.01W, what is the profit-maximizing number of workers the monopsonist should hire? What is the salary the workers will be paid?

Check the answer.

ANSWER:

  1. $30,100 for 1 worker and $30,200 for 2 workers
  2. MWC is $30,300 which is greater than the wage
  3. L* = 33 and W* = $33,300

Reference no: EM132166779

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