Dominick Salvatore Schaums Outline of Microeconomics, 4th edition Schaums Outline Series 2006

306 INPUT PRICING AND EMPLOYMENT [CHAP. 13
13.25 Starting with Fig. 13-21, explain what happens if the government establishes a minimum P a of (a) $40,
(b) $50, (c) $60, or (d) $35.
(a)
(b)
(c)
Fig. 13-23
The monopsonist’s S a curve becomes ABR and the MRC a curve becomes ABCF. The monopsonist will then
behave as a perfect competitor in the input A market and hires six units of input A at P a ¼ $40 (given by point
B, where the MRP a ¼ MRC a ¼ P a ). Thus, monopsonistic exploitation is entirely eliminated and more of input
A is used (compare point B to point E in Fig. 13-23). In the real world, it may be difficult to determine the
precise P a at which the MRP a ¼ P a .
The monopsonist will hire four units of input A but all monopsonistic exploitation is eliminated (see point E).
Monopsonistic exploitation is completely eliminated but the firm hires only two units of input A (see point T).
(d ) The monopsonist’s S a is given by HLBR, the new MRC a curve is HLMCF, and the firm hires five units of input
A (given by point N, where the MRP a curve crosses the discontinuous or vertical segment LM of his MRC a
curve). Thus, the monopsonist hires one more unit of input A than in the absence of the minimum P a of $35
(compare point N to point E), but only half of monopsonistic exploitation is eliminated (compare NL ¼ $10 to
EG ¼ $20).
BILATERAL MONOPOLY
13.26 In Fig. 13-24 the monopolist seller of input A faces the monopsonistic buyer of input A. Assume that
input A is the only variable input for this monopsonist. (a) At what point would the monopolistic seller
of input A maximize total profits? (b) At what point would the monopsonistic buyer of input A maximize
total profits? (c) What will the actual result be? (d ) Give some examples of bilateral monopoly.
Fig. 13-24