Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
9th Edition
ISBN: 9781259290619
Author: Michael Baye, Jeff Prince
Publisher: McGraw-Hill Education
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Chapter 2, Problem 21PAA
To determine
To explain:
The type of advertisement done by Company MT and whether the effect of advertisement will be permanent.
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A monopsonist’s products are sold in a perfect competitive market at a price of $6. If the firm’s TFC=5L+2L2 and in the short run, its marginal product equals 10.
How many units of labor will she employ and what wage will she pay?
Assume now the monopsonist firm’s product is in a monopoly market with demand function P=80-2Q. How many units of labor will she employ and what wage will she pay
Jacob owns company that offers jeans in a perfectly competitive product
market. Jacob is a monopsonist in the labor market, and the table below shows
the wages necessary for workers to supply their labor to Jacob's firm.
Total Wage Bill
Marginal Wage
Employment Wage
(TWB)
Cost (MWC)
1
20
30
3
40
4
50
60
Question A
Calculate the firm's total wage bill and marginal wage cost in each empty cell for
the table above.
Question B
Referring to the table above, by how much does profit change with the hiring of
the fourth worker if the marginal revenue product of the fourth worker is $90?
24
Question C
Referring to the table above, if minimum wage was implemented by the
government and set at a wage of $50, how would profit change for hiring the
fourth work with a marginal revenue product of $90? $
Question D
Assume now that the demand for labor is linear and is such that the firm would
be willing to hire 1 worker for $80, 2 workers for $70, and so on. Using only the
supply information in the…
Big Cheese Inc. is the only employer in a small town in rural Louisiana and thus acts as a monopsony-that is, a buyer's monopoly. Its main product is
cheddar cheese, which it sells in a perfectly competitive market. The following graph shows the marginal revenue product of labor (MRP) curve it
faces, its labor supply curve, and its marginal factor cost (MFC) curve.
Use the black point (plus symbol) to indicate the quantity of labor Big Cheese Inc. will hire and the wage rate it will pay for its workers.
WAGE RATE (Dollars per hour)
60
57
54
51
48
45
42
36
33
30
27
12
9
H
MRP
MFC
3
0
0 1 2 3 4
5
6
7
8
9
10
QUANTITY OF LABOR (Workers per hour)
Monopsonistic Outcome
Labor Supply
Big Cheese Inc. will hire
workers at a wage rate of $
per hour.
(?)
Which of the following explains why the MFC curve lies above the labor supply curve?
◇ Each worker must be paid benefits in addition to the wage rate.
○ The marginal cost of hiring an additional worker includes not only that worker's wage but also…
Chapter 2 Solutions
Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
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Similar questions
- Joe's Flat Pretzels is a dominant employer of manufacturing labor in the town of Pretzelville, PA. Their demand for labor can be represented by W=24-Q where Q is measured in hundreds of hours. The supply curve of labor is W=4+0.25Q. Because Joe's Flat Pretzel has market power in the labor market, their Marginal Cost of Labor is MC=4+.5Q. How many units of labor will Joe's hire? At what wage? Provide a graph illustrating this situation.arrow_forwardThe demand for labor for a firm operating in a perfectly competitive output market equals ____. The demand for labor for a firm with market power in the output market equals ______. Would you expect the presence of labor unions to lead to higher or lower pay for worker-members? Would you expect a higher or lower quantity of workers hired by those employers? Explain briefly.arrow_forwardAssume a monopsony uses only one factor, i.e. labor, L, to produce a final good, Q, which is sold in a competitive market at the price p = 1 to maximise profits. The production function of the monopsonist is given by Q (L) = 100L - 1L². The inverse supply curve for labor is w(L) = 2 20 + 2 L. a. Derive and describe the monopsony's inverse demand curve for labor. b. Describe algebraically and graphically how many units of labor the monopsony hires and at what wage. Describe the nature of monopsony power and provide economic intuition.arrow_forward
- The Happyland Hospital is a monopsonist employer of nurses in the small city of Happyland. The market supply function of nurses is S(W) = 0.25W - 30, where Wis the nurses' weekly wage. a. What is the hospital's marginal expenditure, ME? ⒸME = 120. ⒸME = 8L - 120. ME=8L + 120. O ME = 8L. $ ME = 4L + 120. Instructions: Round quantities to the nearest whole number and all other answers to 2 decimal places as needed. b. If the hospital's marginal benefit is $4,000 per week no matter how many nurses it hires, what is the profit-maximizing number of nurses for the hospital to hire? c. What will the nurses' wage be? $ 16000 d. What is the deadweight loss? nurses. 0 xarrow_forwardA pure monopsony buyer of a resource, in this case, labor L, has a marginal value curve for labor expressed as MV=140-0.4L Its total expenditure function is TE=20L+0.1L2 a) Suppose the firm acts as a monopsonist, What wage will it pay workers and how many hours of labor will the firm hire b) what is the value of deadweight loss given the firm is acting as a monopsonist?arrow_forwardIs it possible to solve this question for an industrial economics? How can the cross elasticity of demand be used and linked to the market elasticity of demand in: 1) Discovering the degree of the firm's experiences with the pricing policy of other firms. 2) Knowing the market structurearrow_forward
- We want to model the oil markets of the 19th century. And let the inverse demand for oil be P = 300 - 2Q, and the marginal cost of producing oil be MC = Q. Standard Oil, during the second half of the 19th century, can be modeled as a monopsony. If we assume the oil market is a monopsony, what is the quantity produced in equilibrium? Give the exact value up to two sig figs after the decimal point.arrow_forwardQ. 2 Suppose a firm is the sole employer in town, facing a labor supply curve w(L) = 0.5L. This monopsony is a price taker in the output market and has demand for labor DL = 200 – L (this is the marginal revenue product of labor). a) Calculate the total L demanded by the monopsony and compare it with perfect competition. b) Calculate producer surplus, compare it with perfect competition. c) Calculate consumer surplus and compare it with perfect competition. d) Calculate DWL for this monopsony, comparing it to perfect competition.arrow_forwardTable 14.13 shows information from the supply curve for labor for a monopsonist, that is, the wage rate required at each level of employment. What is the monopsonists marginal cost of labor at each level of employment? If each unit of labors marginal revenue product is 13, what is the firms profit maximizing level of employment and wage?arrow_forward
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