Exercise 9 - Monolopies - monopolist in its product market...

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ECOglyph1197 4616 In-Class Exercises glyph1197AME: Prof. Francisca Antman Exercise 9—Monopolies, Monopsonies (Based on Borjas 5-9) The Key West Parrot Shop sells parrot souvenir caps in Key West. Each worker at the shop produces two caps per hour. No capital is necessary in the production of caps. Suppose the Parrot Shop is a non-discriminating monopolist in the sale of parrot souvenir caps in Key West. The inverse demand curve for caps is: P = 30 – 0.4 Q where P is the price of a cap and Q is the number of caps sold per hour. (a) Suppose that Key West is a competitive firm in the labor market despite being a
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Unformatted text preview: monopolist in its product market. If the going wage rate is $28, how many workers will Key West employ? (Hint: First find the production function and the MP E .) (b) Now suppose that the Parrot Shop is the only employer in town (but can only charge one wage) and faces an hourly supply of labor given by: w = 0.9E + 5 where w is the hourly wage rate and E is the number of workers hired each hour. How many workers should the Parrot Shop hire each hour to maximize its profit? What wage will it pay? How much will it charge for each cap? (Hint: First find the MC E .)...
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