Question 3 of 6 Suppose the market supply is given by L=2.8w. Assume the product market is competitive and the product price is p=$9. Also suppose MPI=9.6-0.7L and that the firm has monopsony power. A. Graph the marginal revenue product of labour. The slope of this curve is equal to . The vertical intercept of this curve is equal to . Write the formula for the inverse supply of labour and graph the supply curve. The slope of this supply curve is B. For this firm, the fully simplified formula for marginal cost is MCI = _ L (Enter the value which completes the formula. Do not enter the variable, it has been given) 0.71 Illustrate this market graphically, including accurate numbers for slopes and intercepts. Write the condition which the monopsonist's optimal choice of labour must satisfy. This monopsonist will choose employment level . At this employment level, the firm will offer the wage $ : and the value marginal product of labour is $ . The average cost of labour for this monopsonist is $ and the firm's profit per worker is $ so this monopsonist makes a profit of $ C. The competitive outcome would occur at the intersection of which two curves? Indicate this point on your graph. Based on the equations given, the competitive level of employment would be and the competitive wage would be $ . Relative to the monopsony outcome, competitive employment is (Enter "1" for higher, "0" the same, "-1" for lower) and competitive wages are (Enter "1" for higher, "O" the same, "-1" for lower). Now suppose the union insists wages must not be below $4.76: D. Carefully draw the firm's new marginal cost of labour. For employment levels up to L= : the firm's marginal cost of labour will be $4.76. For levels of employment greater than that, the marginal cost of labour (Enter "1" for increases, "0" for stays the same, "-1" for decreases). Explain why. E. Has the condition for the monopsonist's optimal choice of L changed? After the union influence, the level of employment will be and workers will be paid $ . When the union insists on at least $4.76 then, relative to the monopsony outcome, employment is (Enter "1" for higher, "0" for the same, "-1" for lower) and worker pay is higher, "0" the same, "-1" for lower) and worker pay is (Enter "1" for higher, "0" for the same, "-1" for lower). When the union insists on at least $4.76 then, relative to the competitive outcome, employment is (Enter "1" for (Enter "1" for higher, "0" for the same, "-1" for lower). Do you think the union can insist on a wage higher than $4? Write down what you think determines the minimum wage insisted on by the union
