Carl the clothier owns a large garment factory on an isolated island. Carl's factory is the only source of employment for most of the islanders, and this Carl acts as a monopsonist. The supply curve for garment workers is given by:
L=80w
Where L is the number of workers hired and w is their hourly wage. Assume also that Carl's labor demand (marginal revenue product) curve is given by:
L=400-40MRPL
a. How many workers will Carl hire to maximize his profits and what wage will he pay?
b. Assume now that the government implements a minimum wage law covering all garment workers. How many workers will Carl now hire and how much unemployment will there be if the minimum wage is set at $4 per hour?
c. How does a minimum wage imposed under monopsony differ in results as compared with a minimum wage imposed under perfect competition (assuming the minimum wage is above the market-determined wage)?