Question
Problem 1: Equilibrium in the Labor Market. The aggregate supply of soccer players L as a function of the wage w is given by w(L)
Problem 1: Equilibrium in the Labor Market. The aggregate supply of soccer players L as a function of the wage w is given by
w(L) = 30 + 3L
There are six identical soccer teams in the market, and each team is a monopolist in the market for tickets to their own games. The demand curve for soccer tickets for each team is identical and given by
P (q) = 70 2q
where q is the number of tickets sold by the team. The production function for each team is given by
q(l) = 3l
That is, every soccer player increases the number of tickets sold by three units.
1. Assume that the labor market is perfectly competitive. a) Find each team's labor demand curve. b) Use this to find the aggregate labor demand curve. c) Calculate the equilibrium wage and the total number of soccer players hired in the market. d) Calculate the teams' surplus and the player surplus. 2. Now suppose that the teams form a league and act as a monopsony. a) Find the league's product demand curve P (Q). (Hint: This is the horizontal sum of the identical team demand curves P (q).) b) Calculate the equilibrium wage and the total number of soccer players hired in the market. c) Calculate the teams' surplus and the player surplus. d) What is the deadweight loss created by the monopsony?
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