Labor Economics 3. Consider the case of a monopsonist who is the only employer i
ID: 1140766 • Letter: L
Question
Labor Economics
3. Consider the case of a monopsonist who is the only employer in an isolated town in West Virginia. There are 100 individuals who live in the town, and each has a utility function given by a(1, c) 0.25 In l+ 0.75 In C, where l is their leisure and c is their consumption level. The price of consumption, pe, is equal to 1, and each individual in the town has nonlabor income of Y-10. Each person has a time endowment of T 16. The price of the monopsonist's output is p - 20. The monopsonist only uses labor in production, and has the production technology where H is the total number of labor hours utilizedExplanation / Answer
Answer :- Because the cost of production of streamed milk increase, and the streamed milk is used for, the production of lattes. Therefore the cost of production of lattes also increase & it decrease the profit of lattes supplier.
1) q = H ( given) where H = total no. Of labour hours utilized.
Further the demand for the labour is equal to the value of the marginal product of the labour.
W = vMPL
& MPL is the first derivative of the output function.
dq = 1 and p = 20 ( given )
Where p = is the price of the monopsonist' s output.
W = 1× 20 = 20
Hence monopsonist's demand for labour is W = 20 &
We have infinite demand for labour at W = 20
2) when government imposes a minimum wage of 5, then the demand for labour stay the same and equilibrium wage also still remain the same at W = 20. This is because, this price doesn't effect the equilibrium.
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