AK10-2 - 1. A firm has monopsony power when it has control...

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1. A firm has monopsony power when it has control over the input market in which it is buys. This power results from the fact that either the firm is a sole buyer of an input or a large buyer relative to the market. A firm with monopoly power in the product market can be either a competitive firm in the input market or a monopsony. 2. (a) (b) An increase in the wage will decrease the quantity demanded of labor from 60 to 50 (see figure in (a) above) (c) As the amount of labor hired decreases, the marginal revenue product of capital decreases leading to less capital being used. Less capital will cause the marginal revenue product of labor to decrease, reducing the amount of labor hired further. See the discussion on page 467 (see figure in (a) above) (d) The long-run demand curve is more elastic (see figure in (a) above)
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(a) (b) Payments to capital = 25,600; economic rent = 25,600; wage payments = 76,800; total value of products = 102,400 (c) Elasticity of supply = 1.5 (d) L = 320; w
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AK10-2 - 1. A firm has monopsony power when it has control...

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