Question 2 Consider a monopsonist with the following relationship between wage and labor: and the following...

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Question 2 Consider a monopsonist with the following relationship between wage and labor: and the following production function w= a+bL f(K, L) = ln(L) + In(K) (3) (4) 1. Write the short run profit maximization problem and the necessary condition for an optimal solution to this problem. 2. How much labor does the firm demand? What is the market wage rate? What is output for this level of labor? 3. How does this compare to a perfectly competitive market where w=a+bc? 4. Now suppose the government subsidizes labor for the monopsonist, so they only pay w(1-t) per unit of labor employed. Solve for level of t such that the monopsonist employs same amount of labor as in a competitive market. Question 2 Consider a monopsonist with the following relationship between wage and labor: and the following production function w= a+bL f(K, L) = ln(L) + In(K) (3) (4) 1. Write the short run profit maximization problem and the necessary condition for an optimal solution to this problem. 2. How much labor does the firm demand? What is the market wage rate? What is output for this level of labor? 3. How does this compare to a perfectly competitive market where w=a+bc? 4. Now suppose the government subsidizes labor for the monopsonist, so they only pay w(1-t) per unit of labor employed. Solve for level of t such that the monopsonist employs same amount of labor as in a competitive market.

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1 The shortrun profit maximization problem for a monopsonist can be formulated as follows Maximize fK L wL Where is the profit of the monopsonist fK L ... View the full answer