Exam 14: Markets for Factor Inputs

If clerical workers in your state voted to have a union represent them in negotiations with employers, they would have monopoly power in wage determination. Employers would be in no position to exert monopsony power in their employment of clerks in this market due to the large number of employers in the market. Labor supply is given by L_S = 50W - 100 (or, equivalently W = L_S/50 + 2) Labor demand is given by L_D = 700 - 25W (or, equivalently W = -L_D/25 + 28) a. What is the equation for marginal revenue? b. Using the supply and demand equations, compute the wage rate and number of workers that would be hired when there is no union representation. c. Using the supply and demand equations, compute the wage rate and number of workers hired when the union represents workers and acts to maximize aggregate wages to all workers hired. d. Explain the impact of (c) on the competitive market.

If leisure is a normal good, then the income effect of a decrease in wage will

Suppose the downward sloping labor demand curve shifts rightward in a labor market with a single employer (monopsony). What happens to the equilibrium wage and level of employment in the market?

Scenario 14.1: You are the manager of a firm producing green chalk. The marginal product of labor is: MP_L = 24L^-1/2 Suppose that the firm is a competitor in the green chalk market. The price of green chalk is $1 per unit. Further suppose that the firm is a competitor in the labor market. The wage rate is $12.00 per hour. -Given the information in Scenario 14.1, what is the marginal revenue product of labor?

An example of monopoly power in input markets is

The marginal revenue product can be expressed as the

Mr. Barnes' Mine has a monopoly on coal production in the local community. Also, Mr. Barnes' Mine is the sole employer in the local community. The market supply of labor is: L^S(w) = 50w - 250 Or equivalently w = 50 + 0.02L^S Mr. Barnes' wage bill is: WB = 50L + 0.02L² The resulting marginal expenditure of labor function is: ME(L) = 50 + 0.04L The marginal product of coal as a function of labor is: MP_L = 0.01. The marginal revenue of coal sales as a function of labor is: MR(L) = 100,000 - 28.57L Determine Mr. Barnes' marginal revenue of the product of labor. What is Mr. Barnes' optimal employment of labor? What is the wage rate Mr. Barnes pays for a unit of labor?

Suppose the federal government allows labor unions to act as the sole seller in labor markets, but the government collects a $1 per hour fee to cover unemployment insurance for each union worker. Assuming this fee is not so large that it forces the unions to disband, what is the impact of this fee on the equilibrium wage and employment level in the monopolized labor market?

Electric power utility companies use various fuel sources (e.g., coal, natural gas, nuclear) to generate electricity for their customers. What happens to the demand for natural gas used to generate electricity as we move from a short-run planning horizon to a long-run planning horizon? Why?

Currently, One Guy's uses 4 ovens in the production of pizzas (K represents the number of ovens). One Guy's marginal product of labor function is MP_L (L, K) = . One Guy's can sell all the pizzas it produces for $12 per unit and hire all the labor units it desires at $8 per unit. What happens to One Guy's optimal labor employment if it increases the number of ovens to 5?

Firefighters are highly skilled workers who are typically employed by city governments. If a city reduces the wage rate paid to firefighters to be less than the equilibrium wage rate, what happens to the economic rents earned by the firefighters?

Assume that as the wage rate rises a worker's substitution effect for leisure is larger than the income effect. We can conclude that in this region, the worker's

Figure 14.3 A labor union is exercising monopoly power in the labor market. -Refer to Figure 14.3. To maximize economic rent, the labor union will agree to wage rate:

Use the following statements to answer this question: I. A positive deadweight loss necessarily occurs in labor markets that have one seller (e.g., labor union). II. The deadweight loss in a labor market with one seller (e.g., labor union) is smaller if the union maximizes the total wages earned by union members than if the union maximizes total economic rents.

The industry demand curve for labor is the

A new pizza producing technology changes One Guy's marginal product of labor from MP_L (L) = to MP*_L (L) = . If One Guy's can sell all the pizza it produces for $12 and pays each unit of labor $8, what happens to the level of employment due to this technology change?

Let P be the output price for a particular good. Why is the value P*MP_L greater than MRP_L for a monopolist?

Scenario 14.4: John's firm is a competitor in your product market and a monopsonist in the labor market. The current market price of the product that your firm produces is $2. The total product and marginal product of labor are given as: TP = 100L - 0.125L² MP = 100 - 0.25L where L is the amount of labor employed. The supply curve for labor and the marginal expenditure curve for labor are given as follows: L = P_L -5 ME_L = 2L + 5 -Refer to Scenario 14.4. How much will the monopsonist pay each worker?

An increase in technology that enhances labor productivity will likely result in:

Why doesn't the marginal worker hired earn economic rent in a competitive labor market?