A firm produces output, measured by Q, which is sold in a market in which the price P = 20, regardless of the size of Q. The output is produced using only one input, labor (measured by L); the production function is Q(L) = L. There are many suppliers of labor, and the supply schedule is w = 2L, where w is the wage rate. The firm is a monopsonist in the labor market.
a) What wage rate will the monopsonist pay?
b) How much extra profit does the firm earn when it pays labor as a monopsonist instead of paying the wage rate that would be observed in a perfectly competitive market?