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 $\left(M R P_{L}\right)$, and the supply of labor $\left(S_{L}\right)$.

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

Choose 1 answer:
(A) 400 workers, $\$ 50$ per day
(B) 200 workers, $\$ 40$ per day

Question

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 $\left(M R P_{L}\right)$, and the supply of labor $\left(S_{L}\right)$.

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

Choose 1 answer:
(A) 400 workers, $\$ 50$ per day
(B) 200 workers, $\$ 40$ per day

Accepted Answer

∻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. ⚹◊What is the formula for calculating profit maximization in a monopsonistic competitive labor market?⍭ Generate me a similar question◊

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