JockMart owns a large textile factory in a small, remote community. The JockMart factory is the only source of employment for the community, so that the firm enjoys monopsony power. The supply curve for textile workers is described by L^S = 160w, where L is the number of workers hired and w is the hourly wage. JockMart's labor demand (or, equivalently, marginal revenue product) curve is given by L^D- 1600 - 80 w. Throughout your analysis, assume that JockMart is unable to 'price discriminate' (that is, it will pay the same wage to each of its employees).
a. How many workers will JockMart hire to maximize its profits, and what wage will the firm pay?
b. How many workers would be hired, and what wage rate would prevail, if the labor market were perfectly competitive?
c. Suppose the government implements a minimum wage covering all textile workers at $8 per hour. How many workers will JockMart hire?
d. Illustrate your answers to parts a, b, c, in a diagram and compute the deadweight loss associate with the monopsony and minimum-wage outcomes, respectively.
This solution examines the JockMart case in terms of employee wages, competitive market effects, minimum wage and includes a diagram for further understanding.