Assume that Company X is a monopsony in a small town. It faces the upward sloping market
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Question:
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:
B) Show the wage and the employment level that would prevail under
perfect competition. If there is a dead weight loss under monop-
sony, identify the area that represents it in a diagram.
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