1.Economists view the reserve clause in Major League Baseball as an example of labor-market monopsony where team owners act as the sole buyer of player labor services.Monopsony labor markets are common in sports leagues and particularly important to understand for our remaining course topics.The problem below requires you to apply the theory of a monopsony labor market using math and graphs to support your answers.

Suppose a MLB team owner acts like a monopsony (firm) in hiring labor (players).The team owner faces an inverse supply for labor function WS= 10 + 0.25L with marginal expense (cost) of labor as MEL= 10 + 0.5L, where W is wage (salary) paid and L is units of labor (e.g., number of players).The team's inverse labor demand (Marginal Revenue Product) is MRPD= 40 - L.

a.Find the monopsony profit-maximizing wage paid and labor (L) employed.

b.Compare the market MRP of labor to the monopsony wage paid at the L found in part a. Calculate/explain the economic rent (i.e., economic exploitation) that owner receives from players.

c.Compare the competitive market equilibrium wage and employment of L to the monopsony outcome in part a.

d.Find, illustrate, and explain the welfare loss resulting from monopsony outcome.

e.Players organize to set a minimum set wage (salary) above the monopsony wage you calculated above.Explain how this minimum wage changes the employment level, L, that you found in part (b).(Hint: Showing this graphically may help answer the question.Remember that the minimum wage means teams cannot pay players below this wage, so think about how this changes the MELfor the firm.)

f.Finally, players organize a union to negotiate a wage on behalf of players (for simplicity, all players receive the same negotiated wage).The union incentive is to set a wage and L level to maximize the total sum of wages for all players employed, which is found by setting marginal revenue of adding a union employee equal to the supply of labor (marginal cost of the union supplying additional L).The marginal revenue of adding a union employee is MR = 40 - 2L.Find the wage and employment L that the union would like to set.

g.The team owner and the union enter into collective bargaining, effectively creating a bilateral monopoly situation.What will be the final wage negotiated for players?Explain.