A monopsony in the garment district faces a supply curve for workers given by
where l is the number of workers hired and w is their hourly wage. Assume also that the firm’s labour demand (marginal revenue product) curve is given by
a. How many workers will the firm hire to maximise his profits, and what wage will he pay? If a minimum wage of €4 per hour is imposed what will the consequences for employment levels be?
b. Graph your results.
c. How does a minimum wage imposed under monopsony differ in results as compared with a minimum wage imposed under perfect competition? (Assume the minimum wage is above the market-determined wage.)