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Part C: A Monopsonistic Labor Market Assume the Ross Textile Company is a monopsony in a small town, Because it faces the upward sloping market
Part C: A Monopsonistic Labor Market Assume the Ross Textile Company is a monopsony in a small town, Because it faces the upward sloping market supply of labor, Ross must raise its wage if it wants to increase the quantity supplied of workers. The company pays the same wage to all its employees, so if it increases the wage to attract another worker, the marginal resource cost of that worker is greater than the wage paid to the worker: MRC > Wage. Student Alert: If the wage is raised to hire another worker, then MRC > Wage. 9. Table 4-5.1 shows the supply of labor to Ross. Complete the table. Table 4-5.1 Labor Supply Schedule Workers Wage Total labor cost Marginal resource cost $5.00 $5.00 2 $5.50 $11.00 $6.00 3 $6.00 4 $6.50 5 $7.00 $9.00 6 $7.50 $45.00 10. Plot the Ross Company's labor supply (S) curve and MRC curve in Figure 4-5.2. The firm's marginal revenue product (MRP) curve is already in the graph. Figure 4-5.2 A Monopsonistic Labor Market $10.00 $9.50 $9.00 $8.50 $9.00 $7.50 $7.0 $6.50 $6.00 MAP $4.50 $4.00 $3.50 3.co $2.60 $2.00 $1.50 $1.00 $0.50 2 5 LABOR UNITS (1,000s) 251 Advanced Placement Economics Microeconomics Student Resource Manual . Council for Economic Education, New York, N.Y.Part B: Monopsony and a Minimum Wage Figure 4-62 illustrates the labor market in which there is only one employer. This monopsonist sells its good ina perfectly competitive product market. Figure 4-62 A Monopsonistic Labor Market MRC WAGE (W) $13.00 $6.00 $5.00 150 LABOR (L) 1. What is the profit-maximizing amount of labor for this monopsonistic firm? Why? 2. What wage will it pay each unit of labor? Why? 3. If the government sets a minimum wage of $13.00, how many units of labor would be hired? How many units of labor will be unemployed with this minimum wage? Explain. 4. If the government sets a minimum wage of $6.00, how many units of labor would be hired? How many units of labor will be unemployed with this minimum wage? Explain. Advanced Placement Economics Microeconomics: Student Resource Manual . Council for Economic Education, New York, N.Y. 257
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