Yksi is a monopsonist in its labor market. The graph below shows the marginal resource cost (MRC), supply of labor (S_L), anmonopsonistrevenue product for the labor market.

(a) What is the profit-maximizing quantity of labor for Yksi?

(b) What is the profit-maximizing wage rate that Yksi will pay?

(c) How many units of labor are unemployed because of Yksi's lack of competition in the labor market?

(d) According to economists, what is the primary reason that the marginal revenue product is downward sloping?

(e) What is the deadweight loss that results from Yksi's monopsony on the labor market?

(f) Assume that Yksi's fixed cost is $300 and labor is its only variable cost. If it is earning normal profits, what is its total revenue in the product market?

(g) If Yksi lost its factor market power and the labor market became competitive with no effect on the total labor supply, what would be the profit-maximizing total factor cost for labor?

(h) A technological advance makes every unit of labor more productive for the good Yksi sells in the output market. Ignoring the values on the axes, copy the labor market graph above and illustrate the effect of the advance on the labor market.

(i) As a result of the change from part (h), would Yksi spend more, less, or the same on labor? Explain.

(j) Based on the information given, what can be determined, if anything, about the product market structure that Yksi operates in? Explain.
 

Transcribed Image Text:

Wage $40 $40 $30 $20 $15 0 I I 1 I 1 1 15 25 MRC 1 85 145 205 S₁ MRP Quantity of Labor Wage $40 $40 $30 $20 $15 0 I I 1 I 1 1 15 25 MRC 1 85 145 205 S₁ MRP Quantity of Labor

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