Problem
Consider a partial equilibrium (often called "supply and demand") model of unregulated labor monopsony we discussed in class, with "workers hired" on the x axis and "wage" on the y axis. Recall there was one employer buying labor services from many workers.
1. Draw the complete diagram. Make sure to include (upward-sloping) labor supply, (downward sloping) marginal value of labor for the employer, marginal cost of labor for the employer, and the market wage and quantity of workers hired.
2. On the diagram, note the "efficient" wage and quantity of workers hired. Explain how the market wage and labor quantity differ from the efficient quantity and why the employer does this.
3. Explain how a minimum wage could increase employment (workers hired) in this model.
4. Explain why a competitive labor market (where MV=Demand) would reach the efficient market equilibrium without regulations.