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.