Question

4. Japan has limited and declining domestic supplies of liquid natural gas (LNG). They are the world's largest importer of LNG. Japan imports from a variety of countries, including Malaysia, Australia, the Middle East, and Russia, indicating they are able to choose from a number of suppliers. Consider Japan a firm that is determining how much LNG to buy. They operate as a monopsony - 1 buyer in a market with many suppliers of LNG. a. On the graph below, draw an example of the monopsony model. Include the demand curve (marginal revenue product - MRP), the supply curve, and the marginal factor cost - MFC curve. Also, identify the monopsony equilibrium price (Pms) and quantity (Qms) on the graph.

Answer 1

A)

B) at Monopsony eqm

MFC curve cuts the MRPL ( demand Curve)

So eqm price is found from supply Curve, corresponding to eqm Quantity, where MFC & MRPL cuts each other

.

C) MFC Curve always have the double Slope , of that of the supply Curve

So MFC curve is steeper than supply curve

.

D) in perfect Competition eqm

Supply Curve cuts the MRPL Curve

.

E) green shaded area is deadweight loss in Monopsony

It's mandatory to solve only first Four parts as HOMEWORKLIB RULES rule