Consider the case of a monopsonist who is the only... Consider the case of a monopsonist who is the only employer in an isolated town in West Virginia. There are 100 individuals who live in the town, and each has a utility function given by u(l,c) = 0.25ln(l) +0.75ln(c) where l is their leisure and c is their consumption level. The price of consumption is equal to 1, and each individual in the town has nonlabor income of Y = 10. Each person has a time endowment of T = 16. The price of the monopsonist’s output is p= 20. The monopsonist only uses labor in production, and has the production technology q = H, where H is the total number of labor hours utilized.
(a) Solve for the monopsonist’s demand for labor. At this demand level, what is the wage paid?
(b) The government imposes a minimum wage of 5. What is the demand for labor at this wage?