Scenario 14.4:
John's firm is a competitor in your product market and a monopsonist in the labor market. The current market price of the product that your firm produces is $2. The total product and marginal product of labor are given as:
TP = 100L - 0.125L 2 MP = 100 - 0.25L
where L is the amount of labor employed. The supply curve for labor and the marginal expenditure curve for labor are given as follows:
L = P L -5 ME L = 2L + 5
-Refer to Scenario 14.4. How much will the monopsonist pay each worker?
A) 0
B) 78
C) 83
D) 92
E) 100

Question

Quizplus · Accepted Answer

To determine the wage rate, we need to find the monopsonist's equilibrium point where the marginal expenditure on labor (MEL) equals the marginal productivity of labor (MPL). Setting ME_L = MPL, we get: 2L + 5 = 100 - 0.25L Solving for L, we get L = 83.33. Substituting L into the labor supply equation, we get: 83.33 = P_L - 5 Solving for P, we get P = 1.0. Therefore, the monopsonist will pay each worker $83.33, which is closest to answer choice C.

Scenario 14.4: John's Firm Is a Competitor in Your Product Market and Market