Assume that Company X is a monopsony in a small town. It faces the upward sloping market supply of labor, given by w(L): Further assume that it sells its good in a perfectly competitive product market at $P per unit. The production uses labour only and marginal product of labour MP L is decreasing in L

(a) What is the profit-maximizing amount of labor for this monopsonistic firm? What wage will it pay each unit of labor? Illustrate

your answer diagrammatically and explain your result intuitively.

(b) Show the wage and the employment level that would prevail under

perfect competition. If there is a deadweight loss under monopsony, identify the area that represents it in a diagram.

(c) Let wmin be the minimun wage imposed by the government, Use

the diagram in part (a) and discuss the effect of minimum wage

on the wage and employment level. If there is a deadweight loss,

identify the area that represents it. Is it smaller or larger?

(d) Suppose Company X is able to practice the first-degree wage discrimination. What is the employment level in this case? Identify

it in the same graph. Is there any deadweight loss?