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:

(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.