Monopsony basics
Consider a newspaper in a small town that has monopsony power in hiring journalists. The following table shows the labor hours that will be supplied at each of the given hourly wages, as well as the total cost of labor at each quantity of labor. Suppose the newspaper’s demand for labor as a function of the marginal value product of labor (MVP
L
) is given by L = 8 – MVP
L
/3. Compute the marginal expense (ME
L
) and marginal value product (MVP
L
) of adding an additional hour at each quantity and enter the values into the following table. (circle symbol) to plot the firm’s demand for labor as a function of the MVP
L
.
Which of the following explains why the ME
L
curve lies above the labor supply curve?
Each worker must be paid benefits In addition to the wage rate.
The firm faces a downward-sloping demand curve in the market for newspapers.
Each additional unit of labor has a lower marginal product than the previous one.
The marginal cost of hiring an additional unit of labor Includes not only that unit of labor’s wage but also an increase in the wages of all the other units of labor.
To maximize profits, the firm will hire r and pay a wage of per hour, which is v the marginal value product of the final unit of labor hired.
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