Suppose that we have a profit maximising monopsonist facing a production function: q=8L-2L2 , a price of good p = 4 and a labour supply given by: w(L) = 3L

a) Plot the supply and demand curve and find this firm equilibrium. Draw this equilibrium graphically and discuss the assumptions associated with a firm in a monopsony (non-competitive labour market).

b) Calculate the elasticity of the labour supply at the equilibrium. Discuss the implication of elasticity of labour supply on ME and wages paid to workers.

c) Imagine that a new government is elected and impose a minimum wage of 6. Show the outcome of this reform on the graph drown previously and provide an explanation to why the marginal expense of labour exceeds the labour supply curve.