4.4 — Factor Markets — Practice Problems

Carl’s Coal Mining operates in a remote area. Because of its location, it has monopsony power in the local labor market for miners. Its marginal revenue product of labor is \[MRP_L = 400-5L\] where \(L\) is the total number of miners. The labor supply curve of local miners is \[w = 5L-50\] where \(w\) is the wage (in $1000’s per miner).


Write a function for the marginal cost of labor.


What quantity of workers will the mine hire, and what wage will it pay its workers?


What would the quantity of workers be, and what would the wage be, if there was competition among other local mines for labor?


Sketch a graph of this market, and be sure to label all of your findings (and show the Deadweight Loss) from Parts A-C.