Question

15. The following diagram shows the marginal of labor in the production of lemongrass revenue product of labor and the supply Wage ($/hour) $42 14 MRPL 56 Quantity of labor Express the marginal revenue product of labor in the lemongrass industry mathematically. a. b. Express the supply of 1abor in the 1emongrass industry mathematically. If lemongrass production were many workers would be hired and what wage would they be paid? competitive in both input and output markets, how C. d. A ruthless lemongrass producer drives all other lemongrass producers out of town with dire threats. That producer becomes a marginal expendi ture curve facing that employer. Then, graph the marginal expenditure curve monopsonistic buyer of labor. Find the e. How many units of labor wil1 a will the workers be paid? monopsonistic lemongrass producer hire? How much f. By how much does employment fal1 when the 1abor market goes from competitive on the buyer s side to monopsonistic? g. Calculate the deadweight loss of monopsony and illustrate it on the graph. Is eliminating competition on the buyer' s side of the labor market a good thing for society, or a bad thing?

Answer 1

a) MRPL: Wage = (14-42)/(56-0)*Labour +42

Wage = 42 -0.5Labour

b) Supply: Wage= 14/56*Labour

Wage = 0.25*Labour

c) equilibrium will be demand=supply

Workers employed = 56; Wage = 14

d) marginal expenditure = dTotal costs/dLabour

Total costs = W*L = 0.25*L^2

Marginal expenditure = 0.5L

e) ME = MRPL

L = 42; W = 0.25*42 = 10.5

f) employment falls by 14 (56-42)