FRQ : The resource market

W.E.B. Buggin' is a prot-maximizing monopolist that sells a patented bug repellent and earns economic prots. (a) Draw a correctly labeled graph that shows each of the following for W.E.B. Buggin' (i) Price and output of the repellent (ii) Area of economic profits (b) Assume that W.E.B. Buggin' hires its production workers in a perfectly competitive labor market at the wage rate of $20 per hour. (i) State the marginal conditions for hiring the prot-maximizing amount of labor (ii.) Draw a correctly labeled graph that shows the labor supply and demand curves for W.E.B. Buggin' and indicate the prot maximizing quantity of labor. (0) Suppose that the market wage rate now falls to $15 per hour. Show on your diagram in (b) (ii) how each of the following would be affected. (i) The supply of labor to W.E.B. Buggin' (ii) The quantity of labor hired by W.E.B. Buggin' (d) Given the lower wage rate in (c), indicate how each of the following would change. (i) Total xed cost (ii) Marginal cost (iii) Price of the product