A monopsonist faces a market labor supply curve w = 20 + L,where w is the wage rate and L is the number of workers employed.If the firm's labor demand curve is w = 200 - 4L,what is the optimal wage rate and quantity of labor employed?

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Quizplus · Accepted Answer

The monopsonist's profit-maximizing condition is MR = MC, where MR is the marginal revenue product of labor and MC is the marginal cost of labor. The MR curve is the derivative of the total revenue curve, which is TR = wL. The MC curve is the derivative of the total cost curve, which is TC = wL + F, where F is fixed costs.In this case, the MR curve is MR = 200 - 4L and the MC curve is MC = 20 + L. Setting MR = MC, we get:200 - 4L = 20 + L5L = 180L = 36Substituting L = 36 into the labor demand curve, we get:w = 200 - 4Lw = 200 - 4(36)w = 56Therefore, the optimal wage rate is w = 56 and the optimal quantity of labor employed is L = 36.

A Monopsonist Faces a Market Labor Supply Curve W =