If the labor supply curve faced by a monopsony is given by l = -800 + 50W, then the correct marginal expenditure curve will be:
A) l = -800 + 100W.
B) W = 16 - 0.02l.
C) l = -800 + 25W.
D) W = 16 - 0.04l.

Question

Quizplus · Accepted Answer

The marginal expenditure curve is the derivative of the total expenditure curve with respect to labor. The total expenditure curve is equal to the wage rate times the quantity of labor supplied. So, the marginal expenditure curve is equal to the wage rate plus the product of the wage rate and the derivative of the labor supply curve with respect to the wage rate. In this case, the derivative of the labor supply curve with respect to the wage rate is 50, so the marginal expenditure curve is equal to W + 50W = 16 - 0.04l.

If the Labor Supply Curve Faced by a Monopsony Is