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Question
Microeconomics
Posted about 2 months ago

A factory that makes hot glue guns hires labor in a monopsonistic competitive labor market. This graph illustrates the firm's marginal factor cost of labor (MFC_L), marginal revenue product of labor (MRPL)\left(M R P_{L}\right), and the supply of labor (SL)\left(S_{L}\right).

What wage and quantity combination will this firm choose to maximize profits?

Choose 1 answer:
(A) 400 workers, $50\$ 50 per day
(B) 200 workers, $40\$ 40 per day
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Answer from Sia
Posted about 2 months ago
Solution
a
Identify the profit-maximizing condition: In a monopsonistic labor market, the firm maximizes profit by hiring labor where the Marginal Revenue Product of Labor (MRP_L) equals the Marginal Factor Cost of Labor (MFC_L)
b
Locate the intersection point: From the graph, the intersection of MRP_L and MFC_L occurs at x = 4 (400 workers) and y = $50
c
Determine the wage: The wage corresponding to the quantity of workers (400) is $50 per day
Answer
(A) 400 workers, $50 per day
Key Concept
Monopsonistic labor market profit maximization
Explanation
In a monopsonistic labor market, the firm maximizes profits by hiring the quantity of labor where the Marginal Revenue Product of Labor (MRP_L) equals the Marginal Factor Cost of Labor (MFC_L). In this case, the intersection occurs at 400 workers and a wage of $50 per day.

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