Say that there are two types of individuals in the market, 100 individuals of type 1 and 200 individuals of type 2. The difference between types is reflected solely in their productive capacity in the labor market. For every hour worked, type 1 individuals produce 3 units of output, whereas type 2 individuals produce 2 units of output per hour worked. The preferences of all types are the same and assume that all individuals supply labor according to hi = 1 + wi, where wi is the wage paid to type I workers. The product price is equal to 1.
(a) Assume that all labor in the market is employed by the same firm (i.e., monopsony). What is the firmâs optimal choice of w1 and w2?
(b) Many firms enter the market, each with the same production technology. By doing so, the labor market becomes competitive. What are the wages of type 1 and type 2 workers in this case?
(c) Compare the total amount of output produced in the monopsony and competitive labor market cases
Say that there are two types of individuals in the market, 100 individuals of type 1 and 200 individuals of type 2. The difference between types is reflected solely in their productive capacity in the labor market. For every hour worked, type 1 individuals produce 3 units of output, whereas type 2 individuals produce 2 units of output per hour worked. The preferences of all types are the same and assume that all individuals supply labor according to hi = 1 + wi, where wi is the wage paid to type I workers. The product price is equal to 1.
(a) Assume that all labor in the market is employed by the same firm (i.e., monopsony). What is the firmâs optimal choice of w1 and w2?
(b) Many firms enter the market, each with the same production technology. By doing so, the labor market becomes competitive. What are the wages of type 1 and type 2 workers in this case?
(c) Compare the total amount of output produced in the monopsony and competitive labor market cases
