A monopsonist buys labor for less than the competitive wage. What type of inefficiency will the use of monopsony power cause?

How does the answer change if the monopsonist in the labor market were also a monopsonist in the output market?

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himanshusoni1909Lv2

24 May 2023

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Related questions

The difference between a monopsonist and a monopolist is that

Select one:

a. a monopolist and a monopsonist can both affect output price, but a monopsonist can also affect resource price.

b. a monopolist can affect output price, whereas a monopsonist can affect resource price.

c. a monopolist can affect resource price, whereas a monopsonist can affect output price.

d. a monopolist sells goods in a perfectly competitive market, whereas a monopsonist buys resources on a perfectly competitive market.

e. a monopsonist and a monopolist can both affect resource prices, but a monopolist can also affect output prices.

In a perfectly competitive output market, the value of the marginal product of a resource is

Select one:

a. greater than the MRP.

b. equal to the MRP.

c. less than the MRP.

d. equal to zero.

e. rising as output rises.

There exist two types of workers in the market, distinguished by some characteristic that has no relationship to labor market productivity. There are 100 types of 1 worker and 100 types of 2 workers. The productivity per hour worked of each type is equal to 2. The product price is fixed at p = 2. Each type of worker has the same labor supply function as in the previous problem, that is h_i =1 + w_i.

(a) Assume that the labor market is inhabited by a monopsonist. The monopsonist's production function is q = H₁+ H_2. The objective of the monopsonist is to maximize his utility, which is given by u = p(H₁ + H₂) - H₂ - w₁H₁ - w₂H_2, where H_i= 100(1 + w_i).

The term -H₂ in the utility function of the monopsonist reflects a distaste for having employees of type 2. What are the monopsonist's utility-maximizing choices of w₁ and w_2?

(b) Say that the labor market becomes competitive in the following sense. Other firms enter the market that is simply profit-maximizers, that is, they have no distaste for hiring type 2 workers. What happens to the wage of type 1 and type 2 workers? What happens to the welfare of the (former) discriminatory monopsonist if he is obligated to offer employment to any individual willing to supply hours to the firm (that is, whether they are type 1 or type 2) at the competitive wage rates prevailing in the labor market?

coffeemammoth765

A monopsonist faces a labor supply curve given by LS =300 + 0.01w, where w is the annual salary.

a. What is the lowest salary the firm can pay yet still induce one worker to want to work for the firm? What is the lowest salary the firm must pay to induce two workers to work for the firm?

b. What is the marginal cost to the firm of adding a second worker given that it must pay all employees the same wage? Is this greater than, less than, or equal to the wage paid to each of the two workers?

c. In general, the marginal cost of hiring additional labor for this firm is given by MW C = 29, 900 + 200L. If the firm's labor demand curve is given by LD = 398 - 0.01w, what is the profit-maximizing number of workers the monopsonist should hire? What is the salary the workers will be paid?