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

(a)What is the prot-maximizing amount of labor for this monopson- istic rm? 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)Letwminbe the minimun wage imposed by the government, Use the diagram in part (a) and discuss the eect 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 rst-degree wage dis- crimination. Whatistheemploymentlevelinthiscase? Identify it in the same graph. Is there any deadweight loss?