We discuss in this course the monopoly market where there is only one seller. Many of the same ideas apply to the monopsony market where there is only one buyer. Consider a monopsony labor market where there is only one firm hiring many workers. The marginal revenue of labor (MRL) for the firm is defined as the increase in the total revenue the firm earns in the output market resulting from hiring one additional worker. MRL(L)=1000-10L, where L is the number of workers hired per day (i.e. quantity of labor). The market supply curve of labor is given by: L=-10+P/10, where P is the daily wage (in $ terms) paid to each worker (i.e. price of labor). The firm must pay the same wage to every worker it hires.

b) Write down the marginal social benefit of labor and the marginal social cost of labor respectively as a function of the quantity of labor. What is the efficient number of workers hired?

How to answer b