This is a continuation of Problem 2 in GFE 28... A wage-setting
firm faces the following market supply curve Ws(L)
= 5+0.0025*L, where L is units of labor per time period and
W is wages, measured in dollars per unit of labor. The firm's
marginal product function is given by MP(L) = 5-0.001*L. Finally,
the firm sells it output is a perfectly competitive product
market at a price P* = $5 per unit. Assume that the firm seeks
to maximize profit.
What would the equilibrium wage and hiring be in a perfectly
competitive labor market? Show your work.
What would the social gain be if this wage-setting firm were
forced to hire and pay at the perfectly competitive equilibrium?
Who would gain and who would lose as a result?
Use Excel and the information in question 1 to plot this firm's
labor demand, labor supply, and marginal expenditure curves.
Let the domain of L = 0, 200 ... 4000.
Why is there a social cost associated with firms that have
monopsony power? If the gains to buyers from monopsony power
could be distributed to sellers, would the social cost of monopsony
power be eliminated? Explain.
Due 5 December.
Note: In order to receive a "credit" grade, your written
responses to the questions must be submitted by you personally (not
by some other student) by the start of class on the day it is due.