The following diagram shows the marginal revenue product of labor and the supply of labor in the production of lemongrass.

a. Express the marginal revenue product of labor in the lemongrass industry mathematically.
b. Express the supply of labor in the lemongrass industry mathematically.
c. If lemongrass production was competitive in both input and output markets, how many workers would be hired and what wage would they be paid?
d. A ruthless lemongrass producer drives all other lemongrass producers out of town with dire threats. That producer becomes a monopsonistic buyer of labor. Find the marginal expenditure curve facing that employer. Then, graph the marginal expenditure curve.
e. How many units of labor will a monopsonistic lemongrass producer hire? How much will the workers be paid?
f. By how much does employment fall when the labor market goes from competitive on the buyer's side to monopsonistic?
g. Calculate the deadweight loss of monopsony and illustrate it on the graph. Is eliminating competition on the buyer's side of the labor market a good thing for society, or a bad thing?

Transcribed Image Text:

Wages (S/hour) SL $A2 14- MRPL Quantity of labor (hours) 56