PS10-1 - Ri ce U ni ve r s it y E C O N 211, Fall 2007 P...

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Rice University E C O N 211, Fall 2007 Problem Set 10 Due on Thursday/Friday, November 29/30 1. (15 points) What do we mean when we say a firm has monopsony power? Is it possible for a firm to be both a monopolist and a monopsonist? Is it possible for a firm to be a monopolist but not a monopsonist? 2. (20 points) Consider a perfectly competitive firm that produces baseball caps, which sell for $5 apiece. The following is a firm’s short-run production function. The firm also operates in a competitive labor market, and the wage is $150 per day. Quantity of Labor (L) Per Day Total Number of Baseball Caps Produced 0 0 10 20 20 50 30 90 40 140 50 180 60 210 70 230 a. Graph the MRP L curve and the labor hired if the wage is $150 per day. b. Assume that the wage increases to $200 per day. Describe what will happen in the short run. Show this change on the same graph. 3. (35 points) Consider a firm with the following market demand curve for labor: w=400-(1/2)L and market supply for labor: w=80+(1/2)L. a.
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PS10-1 - Ri ce U ni ve r s it y E C O N 211, Fall 2007 P...

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