Scenario 14.4: John's Firm Is a Competitor in Your Product Market and Market

Multiple Choice

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. Suppose that the price of the product rises to $5, the price of labor

A) will decrease.
B) will increase.
C) will not change.
D) will change in an indeterminate fashion.