Question
Carl the clothier owns a large garment factory on a remote island. Carl's factory is the only source of employment for most of the islanders,
Carl the clothier owns a large garment factory on a remote island. Carl's factory is the only source of employment for most of the islanders, and thus Carl acts as a monopsonist. The supply curve for garment workers is given by L= 80wand the marginal-expense-of-labor curve is given by MEL = L/40, where L is the number of workers hired and w is their hourly wage. Assume also that Carl's labor demand (marginal value product) curve is given by:
L = 400 - 40MVPL
a. How many workers will Carl hire in order to maximize his profits, and what wage will he pay?
b. Assume now that the government implements a minimum-wage law covering all garment workers. How many workers will Carl now hire, and how much unemployment will there be if the minimum wage is set at $3 per hour? $3.33 per hour? $4.00 per hour?
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