Imagine a CEO retreat in the desert in which CEOs spend hours in a sauna each day and cannot leave the desert between sauna sessions. The folks running the retreat (our firm) sell lemonade after each sauna session. They are a monopoly in the market of refreshments for this CEO camp in the desert. Imagine CEOs at the retreat have the inverse demand function p(Q) = 12000 1000Q for lemonade after using the sauna. Furthermore, the folks running the retreat have the cost-function C(Q) = 1000Q2 + 1000 for lemonade.

Now imagine that the CEO retreat is a monopsony employer for laborers (to make lemonade) in the geographic market surrounding the retreat. Suppose the firm faces an inverse supply curve of labor of w(L) = 4000 + 1000L.

A. What is the marginal expenditure curve for the CEO retreat? Now assume the monopsony has an inverse demand curve for labor of w(L) = 130001000L.

B. What are the equilibrium wage and labor quantity?

C. Show the equilibrium wage and equilibrium labor quantity graphically. Include the inverse demand curve and the firm's supply and marginal expenditure curves.

D. What are consumer surplus, producer surplus, and deadweight loss at the equilibrium?