How does a price control impact the process of a price adjustment to equilibrium?
Subsection8.6.2Monopsonistic input markets
Subsection8.6.3Demand for labor
Subsection8.6.4Monopsonistic input markets
Subsection8.6.5Comparison: output markets versus input markets
Consider the short-run production function below for a perfectly competitive firm. The firm has no market power in output or input markets, and therefore faces a constant output price of \(p = 10\) and a constant wage rate of \(w = 40\text{.}\) Labor is the firm’s only variable input.
\(L\)
\(q\)
\(MPL\)
\(MRPL\)
\(MC\)
0
0
-
-
-
1
10
10
4
2
18
3
24
4
28
5
30
Complete the table above.
If the firm chooses output \(q^*\) to maximize its profit, what condition does it use? Give the condition, and the value of optimal choice of output \(q^*\text{.}\)
In one carefully-labeled graph, draw the demand curve faced by the firm, the firm’s \(MC\) curve, and \(q^*\text{.}\) What curve does the \(MC\) curve represent?
If, instead, the firm chooses its optimal quantity of input \(L^*\) to maximize its profit, what condition does it use? Give the condition, and the value of optimal choice of labor, \(L^*\text{.}\)
In a separate, carefully-labeled graph, draw the supply curve faced by the firm, the \(MRPL\) curve, and \(L^*\text{.}\) What curve does the \(MRPL\) curve represent?
Do your answers for \(q^*\) and \(L^*\) represent the same optimal choice? Explain in words, and draw the connection between the two values in one carefully-labeled graph.
What one property gives the two curves in parts c. and e. their shape?
