Question

9、Let W and L denote the wage and the amount of labor employed, respectively. A firm faces the labor supply curve L = 2W - 6 and the marginal product of labor is given by MPL = 20 - L. The firm sells its output in a perfectly competitive market at $0.50 each.

(a) If this labor market is perfectly competitive, find the equilibrium employment, the equilibrium wage, and the number of unemployed people.

(b) Suppose that the government imposes a minimum wage of $7. Find the equilibrium employment and the number of unemployed people.

(c) If this labor market is controlled by a non-discriminating monopsonist, find the equilibrium employment, the equilibrium wage, and the number of unemployed people.

(d) If this labor market is controlled by a non-discriminating monopsonist and the government imposes a minimum wage of $7, find the equilibrium employment and the number of unemployed people.

Answer 1

a) is = 20-6 MPL=20-L, P=.5 a) Perfect compt VMR = woge (146)/2= 6, •5 (MPL)= 4+6)/2 05 (90-L= -5 L +3 10-05 L = 5Lt3 Ang Eqm employment, 7 = L* &qm wage= (46) 6.5 No unemployment. b) Min wage=4 then from UMPL awowe 25 (90-L) = LG Ang Now at w = 7 total supply of Labor = 2(7)-6 unemployment = 8-6= 2 Ang

20 DATE: 1 PAGE NO Monopsonist, then at Eqm VMPL = MCL MCL Marginal cost of Labor L+6)/2.L (05 2+ 3) = .5L²+36 M CL = ATCL |AL = TCL= WL Ltz Ang at Eqm .5 (20-2) = Lt3 10-.5 L = Lt 3 . q=1.5L L'- 7/145 4.667 wage from Labor ss cowe w = (+6)/ (10 667)/2 5.33 Ang unemployment (9.33 - 5.33) = 4 = 4 Ang at w = 5.33 L&= (from UMPL) •5 (20-L)=5.33 L- 20-10.66 = 9.33 d) Min W =q, then from Labor ss cowe w='(L+6) LS=217)-6 8 Labor employed = 8, ume nemployed Zero Ang