Monopsony Problem

Consider a monopsonistic labor market. The equation of the supply curve of labor or average
cost of labor is ACL = W = 120 + 2L, where L is the amount of labor used per day and W is the
wage per day. The marginal revenue product of labor is MRPL = 240 2L.
a. Graph the ACL and MRPL curves.
b.

Determine algebraically the intersection of ACL and MRPL; show those numbers on your
graph.

c.

Determine the equation for the total cost of labor TCL.

d.

Determine the equation for the marginal cost of labor MCL; add the MCL curve to your
graph.

e.

Determine the profit-maximizing employment level and the profit-maximizing wage

level and show on your graph.

f.

If a minimum wage of $180 per day were imposed, what would the new employment
level be? How does this employment level compare to the level prior to the minimum wage?

g.

If a minimum wage of $200 per day were imposed, what would the new employment
level be? How does this employment level compare to the level prior to the minimum wage?