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Question 2 [word limit: 750] Assume a monopsony uses only one factor, i.e. labor, L, to produce a nal good, Q, which is sold in
Question 2 [word limit: 750] Assume a monopsony uses only one factor, i.e. labor, L, to produce a nal good, Q, which is sold in a competitive market at the price p = I to maximise prots. The production function of the monopsonist is given by Q(L) = 100L $13. The inverse supply curve for labor is w(L) = 20 + 2L. b. Describe algebraically and graphically how many units of labor the monopsony hires and at what wage. Describe the nature of monopsony power and provide economic intuition. [20 marks]
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