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Unformatted text preview: The price is NR = OP. At this price, total revenue of the firm is OPRN. Wage rate is determined by the value of the average wage. It is therefore NL = OW. At this wage rate, the total wage payment is OWLN. The difference between the areas is the no profit surplus of the producer. Net Profit Surplus = OPRN - OWLN = WPRL The entire surplus is split into two parts: i) SPRe as surplus due to monopoly power in the producer market. ii) WSeL as exploitation of labor due to monopsony power in the labor market. The presence of monopsony has similar undesirable effects such as high price, low level of output, underutilization of capacity of production and loss of consumer surplus....
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This note was uploaded on 11/26/2011 for the course ECONOMIC ec 201 taught by Professor - during the Fall '10 term at Montgomery.
- Fall '10