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 MPL is decreasing in L:

c) Let w(min) be the minimum 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?