A monopsonist’s demand curve for labor is given by w = 12 - 2L, where w is the hourly wage rate and L is the number of person- hours hired.
a. If the monopsonist’s supply (AFC) curve is given by w = 2L, which gives rise to a marginal factor cost curve of MFC 5 4L, how many units of labor will he employ and what wage will he pay?
b. How would your answers to part (a) be different if the monopsonist were confronted with a minimum wage bill requiring him to pay at least $7/ hr?
c. How would your answers to parts (a) and (b) be different if the employer in question were not a monopsonist but a perfect competitor in the market for labor?