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Chapter 15. Input Price and Employment Under Imperfect Competition. Table 15.1. Figure 15.1
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Chapter 15... Input Price and Employment Under Imperfect Competition
Figure 15.1 Demand Curve for Labor of a Monopolist with All Inputs Variable As the wage rate falls and the firm hires more labor (i.e., moves down its MRPLcurve), the MRP curve of inputs that are complements to labor shifts to the right and the MRP curve of inputs that are substitutes for labor shifts to the left. Both of these shifts cause the MRPLcurve to shift to the right to MRP¢. Thus, when the daily wage falls from $66 to $40, the firm increases the number of workers hired from three (point A on the MRPL. curve) to six (point C on the MRP¢curve). By joining points A and C, we get the firm’s demand curve for labor (dL). L L
Figure 15.2 Dynamics of the Engineer Shortage The intersection of DGand SGat point E determines the equilibrium daily wage of $40 for engineers. There are 600,000 engineers employed, and there is no shortage. If DGshifts upward to D¢ , a temporary shortage of 500,000 (EF) results at w = $40 and wages rise. As this occurs, the shortage is somewhat alleviated. At w = $50, the shortage declines to 250,000 (CM). Only after the wage rises to $66 and enough new engineers are trained is the temporary shortage eliminated and new equilibrium point E¢ reached. G
Figure 15.3 A Monopsonist’s Supply and Marginal Expenditure on Labor Curves SLis the positively sloped market supply curve of labor faced by the monopsonist (from columns 1 and 2 of Table15.2) and MELis the marginal expenditure on labor curve (from the first and the last columns of Table 15.2). The MELvalues are plotted between the various units of L used, and the MELcurve is everywhere above the SLcurve.
Figure 15.4 Optimal Employment of Labor and the Wage Rate Paid by a Monopsonist The SLand the MELcurves are those of Figure15.3. With MRPL, the monopsonist maximizes profits by hiring three workers (given by point E, at which the MRPLcurve intersects the MELcurve and MRPL = MEL = $60). The monopsonist then pays w = $30 to each worker (given by point E¢ on SL). The excess of MRPLover w (EE¢ = $30) at L = 3 is called monopsonistic exploitation.
Figure 15.5 Effects of Immigration on the Earnings of Labor and Capital Before immigration, the nation employs 3 million workers at the daily wage of $60. Total output is 0FAG = $270 million, of which 0HAG = $180 million goes to labor and HFA = $90 million goes to the owners of capital. With 1 million immigrants, the wage falls to $40 and the share of total output going to capital increases to JFB = $160 million, or by HABJ = $70 million. Since the original workers’ earnings decline by HACJ = $60 million, the nation receives a net gain equal to the area of triangle ABC = $10 million.
Figure 15.6 Regulation of Monopsony By setting w = $40, CB¢F becomes the new supply of labor curve facing the monopsonist. The new MELcurve is then CB¢BG, with the vertical or discontinuous portion directly above and caused by the kink (at point B¢) on the new SLcurve. To maximize total profits, the monopsonist now hires four workers (given by point B¢, at which the MRPLcurve intersects the new MELcurve) and w = MRPL = $40 (so that monopsonistic exploitation is zero).
Figure 15.7 Bilateral Monopoly D is the monopsonist’s demand (MRP) curve for the product or input that the monopolist seller faces. MR is the monopolist’s marginal revenue curve. The monopolist maximizes profits at Q = 5 (given by point B¢, where MC = MR) at P = $15 (point B on the D curve). The monopolist’s MC curve is the supply curve of the product that the monopsonist faces, and ME is its marginal expenditure curve. The monopsonist maximizes profits at Q = 4 (given by point E, where MRP = ME) and P = $8 (given by point E¢ on the supply curve that the monopsonist faces). The solution is indeterminate and will be within area E¢B¢BE.
Figure 15.8 Methods by Which Labor Unions Can Increase Wages The union can increase wages from $40 to $66 by reducing the supply of union labor from SLto S¢(the left panel), by bargaining with employers for w = $66 (the center panel), or by increasing the demand for union labor from DLto D¢(the right panel). Employment falls from 600 workers to 300 workers with the first two methods (the left and center panels) and increases to 800 workers with the last method (the most difficult to accomplish). L L
Figure 15.9 Effect of Gender Discrimination in Employment Without discrimination, w = $40 for males and females (given by point E, at which SLintersects DL), and 200 females (point A) and 400 males (point B) are employed. If employers refused to hire females, 500 males would be hired at w = $50 (point E¢, where SMintersects DL). Females would have to find employment in other industries, and this would depress wages for all workers in these other industries. With a less extreme form of discrimination, employers may hire females if their wage is, say, $10 less than for males of the same productivity. Employers would then hire 150 females at w = $35 (point A¢) and 450 males at w =$45 (point B¢).
