Demand is given as Qd = 420 - 8W, where Qd is the quantity demanded (in full-time equivalents) and W is the hourly wage rate. Supply is given as Qs = -1,000 + 40W, where Qs is the quantity supplied.

W=29.58

Equilibrium Quantity = 183.33

Since attracting an additional nurse requires raising the wage rate for all nurses, this cost is above the wage rate required for that additional nurse. If the inverse supply curve is given as W = a + bQs, the marginal resource cost is:

MRC = a + 2bQs Essentially, it has the same y-axis intercept as the inverse supply curve, but twice the slope. With a single buyer there isn't a demand curve, but what we would think of the demand curve is the marginal value curve. In this case, it gives the marginal value product (in dollars per hour) of nurses. Hence, you can replace W in the inverse demand function with MVP. To find the quantity of nurses hired, set MRC = MVP and solve for Q.

6. With a monopsony, how many nurses are hired?

7. What is the wage rate? (hint: use the inverse supply curve - not the MRC or demand curve - for this purpose)

8. If the hospital could hire as many nurses as it wanted with the wage rate you found in (7), how many nurses would be hired? (hint: use the demand curve to answer this - plug in the wage from (7)).

9. What is the 'shortage' of nurses? (This is the difference between your answer to (8) and your answer to (6)).

Part 3: Monopsony with 3rd party supplier With the nursing shortage found above, the hospital is interested in finding a solution whereby it can get more nurses, but not raise the wage to its existing nurses. A nursing 'temp' agency has moved into the region and can supply as many nurses as are needed, at a wage of $30.73/hour.

10. How many nurses does the hospital hire via the temp agency?