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.1

(a) What is the profit-maximizing amount of labor for this monopson- istic 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 monop- sony, identify the area that represents it in a diagram. (

c) Let wmin 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?

(d) Suppose Company X is able to practice first-degree wage dis- crimination. What is the employment level in this case? Identify it in the same graph. Is there any deadweight loss?