Hogwarts hires wizardry teachers in a monopsonistic labor market. The graph shown here illustrates Hogwarts' marginal factor cost of labor $\left(M F C_{L}\right)$, the supply of labor $\left(S_{L}\right)$, and the marginal revenue product of labor $\left(M R P_{L}\right)$ for wizardry teachers.

What area represents deadweight loss in this monopsony labor market?
Choose 1 answer:
(A) $w_{a} z Q_{1} 0$
(B) $v z y$
(C) $v x y$
(D) $w_{b} v x w_{d}$
(E) $w_{b} v Q_{1} 0$

Question

Hogwarts hires wizardry teachers in a monopsonistic labor market. The graph shown here illustrates Hogwarts' marginal factor cost of labor $\left(M F C_{L}\right)$, the supply of labor $\left(S_{L}\right)$, and the marginal revenue product of labor $\left(M R P_{L}\right)$ for wizardry teachers.

What area represents deadweight loss in this monopsony labor market?
Choose 1 answer:
(A) $w_{a} z Q_{1} 0$
(B) $v z y$
(C) $v x y$
(D) $w_{b} v x w_{d}$
(E) $w_{b} v Q_{1} 0$

Accepted Answer

∻Solution∻ ‖ a ⋮ Identifying Deadweight Loss: Deadweight loss in a monopsony occurs because the monopsonist hires fewer workers (Q_2) than the competitive equilibrium quantity (Q_1) at a lower wage (w_a) than the competitive wage (w_c). ‖ ‖ b ⋮ Graphical Representation: On the graph, the deadweight loss is the area between the supply curve (S_L) and the marginal revenue product curve (MRP_L) from Q_2 to Q_1. This area represents the lost welfare due to the monopsonist not hiring the additional workers that would have been hired in a competitive market. ‖ ‖ c ⋮ Correct Answer: The correct area representing deadweight loss is the triangle formed by the points v, x, and y. This is because it is the area between the MFC_L curve above the S_L curve (representing the higher wage the monopsonist would have to pay for additional workers) and the MRP_L curve (representing the value of the additional workers' output) from the monopsonistic quantity Q_2 to the competitive quantity Q_1. ‖ ∻Answer∻ ⚹ (C) $v x y$ ⚹ ∻Key Concept∻ ⚹ Deadweight loss in a monopsony labor market ⚹ ∻Explanation∻ ⚹ Deadweight loss in a monopsony labor market is represented by the area where the monopsonist's marginal factor cost of labor (MFC_L) exceeds the supply of labor (S_L) up to the point where the supply of labor intersects with the marginal revenue product of labor (MRP_L). This area reflects the welfare loss due to the monopsonist hiring fewer workers than in a competitive market. ⚹◊What impact does the presence of a monopsony have on the equilibrium quantity and wage rate in the labor market for wizardry teachers at Hogwarts?⍭ Generate me a similar question◊

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