Suppose the market supply is given by L=2.9w. Assume the product market is competitive and the product price is p=$10. Also suppose MP_L=9.1-0.7L 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 MC_L = __ L (Enter the value which completes the formula. Do not enter the variable, it has been given) ______ 

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, "0" the same, "-1" for lower).

Now suppose the union insists wages must not be below $4.73:

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 $4.73. 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 $4.73 then, relative to the monopsony outcome, employment is  ____ (Enter "1" for higher, "0" for 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 $4.73 then, relative to the competitive outcome, employment is____   (Enter "1" for higher, "0" the same, "-1" for lower) and worker pay is   ____(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.