Question

Assume a firm is a monopsonist (single buyer of a factor, such as labor) that can hire its first worker for $6 but must increase the wage rate by $3 to attract each successive worker.

--Set up a schedule for the wage rate, the supply of labor, and the marginal factor cost of labor

---Accurately draw the firm’s labor supply and marginal factor cost curves (use graph paper).

---Arbitrarily draw a downward-sloping demand curve (MRP) for labor. (Anywhere you want—I’ll give an example in class)

---What are the equilibrium wage rate and level of employment? (Note: I need to be able to verify this by looking at the graph, so make sure it is accurately drawn to scale.)

Answer 1