Question

Consider the following table for a profit maximizing monopsonist. How many workers should this firm hire?

Worker	Marginal Expenditure	Marginal Revenue
1	$20	$45
2	$24	$40
3	$26	$34
4	$28	$28
5	$29	$25
6	$30	$23

How did you choose the number of workers to hire in the previous question?

Answer 1

Firm should hire 4 workers

How ?

In order to examine how many workers should a firm hire ,firms compares the cost of one additional labor(that is marginal expenditure) and benefits from addition of that labor(that is marginal revenue).

For workers with marginal revenue (MR) > marginal expenditure (marginal cost) firms has incentive to increase no. of workers because its gives additional profit to firm.

For workers with marginal revenue (MR)< marginal expenditure( marginal cost) firms has incentive to decrease no. of workers because its give losses to firm.

So firm hire no. of workers where marginal expenditure =marginal revenue.

In our case we have for worker =4 , marginal expenditure =marginal revenue =$24.