Carl the clothier owns a large garment factory on an isolated island. Carl’s factory is the only source of employment for most of the islanders, and thus Carl acts as a monopsonist.

The supply curve for garment workers is given by l 5 80w, where l is the number of workers hired and w is their hourly wage. Assume also that Carl’s labor demand (marginal revenue product) curve is given by l 5 400 2 40MRPl

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a. How many workers will Carl hire to maximize his profits, and what wage will he pay?

b. Assume now that the government implements a minimum wage law covering all garment workers. How many workers will Carl now hire, and how much unemployment will there be if the minimum wage is set at $4 per hour?

c. Graph your results.

d. How does a minimum wage imposed under monopsony differ in results as compared with a minimum wage imposed under perfect competition? (Assume the minimum wage is above the market-determined wage.)