Data in the following table refer to the purchase of a resource by a pure monopsonist. Let the resource be labor time L, measured in hundreds of hours per day
Units of Labor Marginal Average Marginal Revenue
Input Expenditure Expenditure Product
L ME AE MRP
1 10 10 16
2 12 11 15
3 14 12 14
4 16 13 13
5 18 14 12
6 20 15 11
7 22 16 10
8 24 17 9
a. Determine the profit maximizing purchase rate of labor for the monopsonist.
b. If this market were not monopsonistic but competitive, what would be the purchase rate of labor time?
c. Determine the equilibrium wage rate in both the monopsonistic and competitive markets?
a. Equate ME to MRP. This occurs at L = 3.
b. Equate AE to MRP. This occurs at L = 4.
c. The wage rate for the monopsonist would be the value of AE at L = 3. Thus, wage = 12. The wage rate in the competitive market would be the value of MRP at the intersection with AE. Thus, wage = 13.
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