2. Consider a labor market with the following facts: The firm (or firms) have a labor demand...
Question:
2. Consider a labor market with the following facts: The firm (or firms) have a "labor demand" of W = -2L + 230. The market labor supply (or Union supply) is L = 100 - 500/w or W = 500/(100 - L).
a) If this is a perfectly competitive market - so lots of laborers in the supply and lots of firms in the demand - find the competitive market wage and quantity of workers.
b) Now assume that there is only 1 firm demanding labor and it is acting as a monopsonist. Derive a function representing the total spending the firm must do on labor as a function of labor. Then find the MEL by taking the derivative of the total spending expression with respect to labor. Show that the monopsonist will want to hire 75 workers. Find the wage and compare these to the results in (a) and explain why the wage and labor quantity move the way they do.
c) Now go back to the demand being made up of many firms, but now there is a union representing all the workers and assume the goal of that union is to maximize total surplus to workers. Find the wage and quantity of labor that does this.(May want to use your graphing calculator for this. Tough by hand). If this market were also a monoposony, how might the wage be determined?