4.4 — Factor Markets — Practice Problems
Carl’s Coal Mining operates in a remote area. Because of its location, it has monopsony power in the local labor market for miners. Its marginal revenue product of labor is
MRPL=400−5L
where L is the total number of miners. The labor supply curve of local miners is
w=5L−50
where w is the wage (in $1000’s per miner).
a
Write a function for the marginal cost of labor.
b
What quantity of workers will the mine hire, and what wage will it pay its workers?
c
What would the quantity of workers be, and what would the wage be, if there was competition among other local mines for labor?
d
Sketch a graph of this market, and be sure to label all of your findings (and show the Deadweight Loss) from Parts A-C.