Assume a firm is a monopsonist that can hire its first worker for $6 but must increase the wage rate by $3 to attract each successive worker (so that the second worker must be paid $9, the third $12, and so on). The marginal revenue product of labor is given in the table below.
Units of labor Marginal Revenue Product
0
1 34
2 28
3 24
4 20
5 14
6 10
1. What will be the competitive equilibrium wage rate and the level of employment?
2. What will be the wage rate and the level of employment under monopsonistic conditions?
3. By how much does the monoposonist reduce wages below the competitive wage?