Columbia UniversityECON W4465ProblemSet3Solutions2

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Midterm II Review - Part II 1. Another Monopsony Question Consider a labor market with the following aggregate labor supply function: L(w) = αW , where α > 0. Suppose that a single monopsony hires... labor in this market with a production function of F (L) = log(L). • We said in class that the monopsony chooses a level of employment which equates the Marginal Revenue Product of Labor to the Marginal Expense of Labor. Under monopsony, explicitly solve for the Marginal Expense of Labor as a function of the level of employment, L. The Marginal Expense of Labor is given by MEL = W (L) + W 0(L)L. In our case, W (L) = Lα, and W 0(L) = α1, so [Show More]

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