Consider a factor market for labor. The demand of a firm for labor is LD = 120
Question:
Consider a factor market for labor. The demand of a firm for labor is LD = 120 – 2w, where w is the wage per hour and L is the number of hours of work. The supply of labor in this market is LS = 8w.
a. If the factor market is perfectly competitive, what are the wage and the number of work hours in the equilibrium?
b. If the factor market is perfectly competitive and a minimum wage of 14 is introduced, what are the equilibrium wage and number of work hours?
c. If the firm is a monopsonist in this market, what are the wage and the number of work hours in the equilibrium?
d. If the firm is a monopsonist in this market and a minimum wage of 14 is introduced, what are the wage and the number of work hours in the equilibrium?
e. How does the introduction of the minimum wage affect the employment measured as the number of work hours under perfect competition (the change between points a and b)? How about under monopsony (the change between points c and d)? Intuitively explain your answer.