Homework Answers
The wage rate is $12
Note that before the minimum wage, Labor demand is Ld = $12
Labor supply is L = w^0.5
Total cost = wL = w^1.5 or C = L^3
Marginal resource cost is MRC = 3L^2
Now Ld = MRC at monopsony's choice for labor unit
3L^2 = 12
L^2 = 4
L = 2 units
MRC = 3*2^2 = $12
Wage rate = w = L^0.5 = $2
Hence monopsony pays a wage of $2 before minimum wage
But when minimum wage is set at $12, monopsony also pays a wage rate of $12.
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