Edna has a monopoly in the sale of engineering services in the local market. Als

Question

Edna has a monopoly in the sale of engineering services in the local market. Also, Edna is the only employer of high skilled labor in the local market.

The marginal product of labor is: MPL= 250.

The marginal revenue of engineering services as a function of labor is: MR(L) = 12,000 - 0.25L

The local supply of high skilled labor is: LS (w) = 200w - 10,000

a.Determine Edna's optimal level of employment and the wage rate Edna pays for a unit of high skilled labor?

b. What is the marginal revenue of the product of labor at the optimal employment level?

c. Suppose Edna acted as a wage taker in determining high-skilled labor employment. How much labor would she hire and at what wage rate? At this level of employment, calculate the marginal revenue of the product of labor

Explanation / Answer

a.Determine Edna's optimal level of employment and the wage rate Edna pays for a unit of high skilled labor?

Solution: Edna's optimal level of employment $47,991.521 and $289.96 wage rate Edna pays for a unit of high skilled labor

Working:

MRPL(L) = MPL(L)*MR(L) = 250 (12,000 + 0.25L) = 3,000,000 + 62.5L

Now setting it equal: 3,000,000 + 62.5L = 50 + L/100

This gives L= $47,991.521

Wage = 50 + 47,991.521/200 = $289.96

b. What is the marginal revenue of the product of labor at the optimal employment level?

Solution: $530

Working:

MRPL(L = 47,991.521) = 3,000,000 - 62.5(47,991.521)

or MRPL = $530

c. Suppose Edna acted as a wage taker in determining high-skilled labor employment. How much labor would she hire and at what wage rate? At this level of employment, calculate the marginal revenue of the product of labor

Solution: $289.98

Working: Wage = 50 + 47,991.521/200 = $289.96

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