Question 1

Assume that a car manufacturing plant in a small town in Michigan in the U.S.is a monopsonist employer of heavy machinery operators.The marginal value product of labor is given by w = 1100 - 20Q where w is the wage rate and Q is the number of heavy machinery operators.The supply of heavy machinery operators is given by w = 200 + 5Q.What is the profit-maximizing level of employment and wage for the car manufacturer? Assume that the plant is perfectly competitive in the output market.

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Question 2

Answer the following: A firm faces total costs,C,price of capital,r,and price of labor,w. a)With capital (K)on the y-axis and labor (L)on the x-axis,graph a firm's optimal combination of inputs for producing Q₀ units of output. b)Decompose the total effect of a wage decrease into the substitution and output effects on the same graph.

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A firm faces total costs,C,price...

Question 3

Answer the following:
a)A backhoe,a piece of excavating equipment which is mounted on a tractor,acts as both a complement and as a substitute to labor.Explain how it could be used as a complement or a substitute to labor.
b)Explain why the standard of living increases in general,even for labor,when capital substitutes for labor.

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a)A backhoe,a piece of excavating...

Question 4

Suppose that a monopsonist is able to perfectly discriminate among workers and pay each her reservation wage.Graphically illustrate equilibrium employment and wages for a perfectly-discriminating monopsonist.How do they compare to a firm which hires labor in a perfectly competitive market? Assume the firm has no monopoly power and sells output in a competitive market.

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Question 5

Using calculus,show the profit-maximizing employment of inputs for a perfectly competitive firm.

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Question 6

The reserve clause in Major League Baseball (MLb. ,which allowed baseball players to negotiate salary only with the first team that signed them,was removed in 1975.The dismantling of the reserve clause was undertaken to:

Accepted Answer

The dismantling of the reserve clause in MLB was undertaken to break up the MLB owner's monopsony power. Prior to the removal of the reserve clause, players were obligated to negotiate salary only with the first team that signed them, giving the owners substantial bargaining power. Removing the clause allowed players to negotiate with multiple teams and increased their bargaining power, which helped to break up the owner's monopsony power.

Question 7

Define monopsony in an input market and graphically illustrate equilibrium employment and wages under a monopsony.

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Question 8

Given the same demand and cost functions,which of the following is true of a monopsony input market as compared to a competitive input market?

Accepted Answer

In a monopsony input market, there is only one buyer (the monopsonist) for the inputs, which gives the monopsonist market power to affect the price of inputs. As a result, the monopsonist can lower the price it pays for inputs below the competitive market price. However, the lower price does not mean that the monopsonist will use more inputs. Instead, it may use fewer inputs to reduce costs and increase its profits. Therefore, the employment of inputs is likely to be lower in a monopsony market compared to a competitive market with the same demand and cost functions.

Question 9

Mines located in rural mountain towns in Kentucky and West Virginia are often the only employers in the area.In other words,a mining company in Kentucky would be considered:

Accepted Answer

A monopsonist is a single buyer in a market, and in this case, the mining company is the only significant employer in the area. As a result, the company can exert significant market power over the labor market, allowing it to dictate wages and working conditions for employees. Thus, the best choice is B, a monopsonist in the labor market.

Question 10

Explain the shapes of the supply curve of labor for all industries together and the labor supply curve for a particular industry.

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Question 11

Use the following figure  to answer the question : Figure 16-2 :shows the marginal cost [MC],average cost [AC],and demand [D] curves for a monopsonist in the labor market.

-Refer to Figure 16-2.When the monopsonist is in equilibrium,the wage rate paid to labor is _____.

Accepted Answer

In a monopsony, the equilibrium wage is determined at the point where the marginal cost of labor (MCL) curve intersects the marginal revenue product of labor (MRPL) curve. This point is vertically projected down to the labor supply curve to find the wage rate. The notation P₁ represents this process, indicating the wage rate paid to labor in equilibrium.

Question 12

A monopsony differs from a monopoly in that:

Accepted Answer

A monopoly has market power in the product market, allowing it to set the price of its product above the competitive level. On the other hand, a monopsony has market power in the input market, allowing it to lower the price it pays for inputs (such as labor or raw materials) below the competitive level. This distinction is important because a monopolist may still face competition in the input market, while a monopsonist may still face competition in the product market. Therefore, the correct answer is C.

Question 13

Use the following figure  to answer the question : Figure 16-2 :shows the marginal cost [MC],average cost [AC],and demand [D] curves for a monopsonist in the labor market.

-Refer to Figure 16-2.When the monopsonist is in equilibrium,the level of labor employed is _____.

Accepted Answer

In a monopsony, the equilibrium level of labor is determined at the point where the marginal expense (ME) curve intersects the marginal revenue product (MRP) curve. This point indicates the most cost-effective level of labor for the monopsonist, where the additional cost of hiring one more unit of labor equals the additional revenue generated by that labor. In the context provided, without seeing Figure 16-2, this explanation applies to how monopsonies typically operate in labor markets.

Question 14

A competitive firm in a competitive labor market faces the following conditions: Q = 12K^½L^½,with the market output price of $100 per unit and the market wage rate of $60 per unit of labor and a market rental price of capital of $100 per unit.How many units of capital should the firm use?

Accepted Answer

To determine the optimal amount of capital the firm should use, we need to calculate the marginal product of capital (MPK) at different levels of capital and choose the level that maximizes it. Taking the partial derivative of the production function with respect to K, we get:

MPK = (6Q/K)^(1/2)

Substituting the given values, we get:

MPK = (6(12)(36)^(1/2)(1)(100)^(1/2)(1)^(1/2)(60)^(-1/2)(100)^(1/2))^1/2 = 120

So, the marginal product of capital is highest when the firm uses 36 units of capital. Therefore, the optimal choice is to use 36 units of capital.

Question 15

Compared to a competitive labor market,in a monopsony labor market:

Accepted Answer

In a monopsony labor market, the single buyer (employer) has more power to set wages and employment levels. This typically results in both lower wages and lower levels of employment compared to a competitive labor market, where multiple employers are competing for workers, driving up both wages and employment levels.

Question 16

Using calculus,show the profit-maximizing employment of inputs for an output market monopoly.

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Question 17

A competitive firm in a competitive labor market faces the following conditions: Q = 12K^½L^½,with the market output price of $100 per unit and the market wage rate of $60 per unit of labor and a market rental price of capital of $100 per unit.How many units of capital should the firm use?

Accepted Answer

To determine the optimal capital choice, we need to find the value of K that maximizes the firm's profits. We can do this by taking the derivative of the profit function with respect to K and setting it equal to zero: dπ/dK = 12^/2U1P1/2 - 100 = 0 Solving for K, we get: K = (100/12)(U1P1/2)/(^{/2)

Plugging in the given values, we get:

K = (100/12)(1*1*60^1/2)/(1*100^1/2) ≈ 99.44

Rounding up, the firm should use 100 units of capital to maximize profits. Therefore, the correct answer is C.}

Question 18

A monopoly firm faces the output demand curve P = 25 - 0.5Q,where P is the price of the final product and Q is the level of output.The production function is given by Q = 5X,where X is the only input used in production.Each unit of X is bought by the firm at a constant price of $25 per unit.Based on this information,what level of input would the profit-maximizing monopoly employ?

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Question 19

Using a graph,show the welfare effects of a monopsony input market compared to a perfectly competitive input market.Assume upward sloping cost curves.

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Question 20

For a firm that is perfectly competitive in the output market but a monopsonist in a particular input market:

Accepted Answer

In a monopsony, the firm has market power in hiring labor, meaning it can influence the wage rate. As a result, the wage rate paid to workers is less than the marginal cost of labor because the firm faces an upward-sloping labor supply curve. This means that to hire additional workers, the firm must pay a higher wage not only to the additional workers but also to all the previously hired workers, making the marginal cost of labor higher than the wage rate of any individual worker.

Quiz 16: Employment and Pricing of Inputs

Using calculus,show the profit-maximizing employment of inputs for a perfectly competitive firm.

The reserve clause in Major League Baseball (MLb. ,which allowed baseball players to negotiate salary only with the first team that signed them,was removed in 1975.The dismantling of the reserve clause was undertaken to:

Define monopsony in an input market and graphically illustrate equilibrium employment and wages under a monopsony.

Given the same demand and cost functions,which of the following is true of a monopsony input market as compared to a competitive input market?

Mines located in rural mountain towns in Kentucky and West Virginia are often the only employers in the area.In other words,a mining company in Kentucky would be considered:

Explain the shapes of the supply curve of labor for all industries together and the labor supply curve for a particular industry.

Use the following figure to answer the question : Figure 16-2 :shows the marginal cost [MC],average cost [AC],and demand [D] curves for a monopsonist in the labor market. -Refer to Figure 16-2.When the monopsonist is in equilibrium,the wage rate paid to labor is _____.

A monopsony differs from a monopoly in that:

Use the following figure to answer the question : Figure 16-2 :shows the marginal cost [MC],average cost [AC],and demand [D] curves for a monopsonist in the labor market. -Refer to Figure 16-2.When the monopsonist is in equilibrium,the level of labor employed is _____.

A competitive firm in a competitive labor market faces the following conditions: Q = 12K½L½,with the market output price of $100 per unit and the market wage rate of $60 per unit of labor and a market rental price of capital of $100 per unit.How many units of capital should the firm use?

Compared to a competitive labor market,in a monopsony labor market:

Using calculus,show the profit-maximizing employment of inputs for an output market monopoly.

A competitive firm in a competitive labor market faces the following conditions: Q = 12K½L½,with the market output price of $100 per unit and the market wage rate of $60 per unit of labor and a market rental price of capital of $100 per unit.How many units of capital should the firm use?

Using a graph,show the welfare effects of a monopsony input market compared to a perfectly competitive input market.Assume upward sloping cost curves.

For a firm that is perfectly competitive in the output market but a monopsonist in a particular input market:

A competitive firm in a competitive labor market faces the following conditions: Q = 12K^½L^½,with the market output price of $100 per unit and the market wage rate of $60 per unit of labor and a market rental price of capital of $100 per unit.How many units of capital should the firm use?

A competitive firm in a competitive labor market faces the following conditions: Q = 12K^½L^½,with the market output price of $100 per unit and the market wage rate of $60 per unit of labor and a market rental price of capital of $100 per unit.How many units of capital should the firm use?