Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 10: Problem 14

The employment of teaching assistants (TAs) by major universities can be characterized as a monopsony. Suppose the demand for TAs is \(W=30,000-125 n\) where \(W\) is the wage (as an annual salary) and \(n\) is the number of TAs hired. The supply of TAs is given by \(W\) \(=1000+75 n\) a. If the university takes advantage of its monopsonist position, how many TAs will it hire? What wage will it pay? b. If, instead, the university faced an infinite supply of TAs at the annual wage level of \(\$ 10,000,\) how many TAs would it hire?

Short Answer

Expert verified
a) In the monopsony case, the university will hire n TAs and pay a wage of W dollars each. b) With an infinite supply at a wage of $10,000 per annum, the university will hire n TAs.

Step by step solution

01

Determine the Quantity and Wage as a Monopsonist

As a monopsonist, the university balances the marginal cost of hiring an additional TA with the marginal benefit. This is represented by the equation: \(W=30,000-125 n\) = \(1000+75 n\). This equation sets supply equal to demand. Solve this equation to find the number of TAs hired in a monopsony situation.
02

Calculate the Wage rate in a Monopsony Position

After finding the number of TAs hired, insert this quantity into either the supply or demand equation to find the equilibrium price, which will be the wage rate in the monopsony.
03

Calculate the Quantity When Wage Is $10000

In the case where the university faces an infinite supply of TAs at the annual wage level of $10,000, we determine the quantity demanded by the university by inserting this wage into the demand equation \(W=30,000-125 n\).

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

A drug company has a monopoly on a new patented medicine. The product can be made in either of two plants. The costs of production for the two plants \(\operatorname{arc} \mathrm{MC}_{1}=20+2 \mathrm{Q}_{1}\) and \(\mathrm{MC}_{2}=10+5 \mathrm{Q}_{2}\). The firm'sesti mate of demand for the product is \(P=20-3\left(Q_{1}+Q_{2}\right)\) How much should the firm plan to produce in each plant? At what price should it plan to sell the product?

Caterpillar Tractor, one of the largest producers of farm machinery in the world, has hired you to advise it on pricing policy. One of the things the company would like to know is how much a 5 -percent increase in price is likely to reduce sales. What would you need to know to help the company with this problem? Explain why these facts are important.

Suppose that an industry is characterized as follows: $$\begin{array}{|ll|} \hline C=100+2 q^{2} & \text { each firm's total cost function } \\ \hline M C=4 q & \text { firm's marginal cost function } \\ \hline P=90-2 Q & \text { industry demand curve } \\ \hline M R=90-4 Q & \text { industry marginal revenve curve } \\ \hline \end{array}$$ a. If there is only one firm in the industry, find the monopoly price, quantity, and level of profit. b. Find the price, quantity, and level of profit if the industry is competitive. c. Graphically illustrate the demand curve, marginal revenue curve, marginal cost curve, and average cost curve. Identify the difference between the profit level of the monopoly and the profit level of the competitive industry in two different ways. Verify that the two are numerically equivalent.

One of the more important antitrust cases of the 20 th century involved the Aluminum Company of America (Alcoa) in \(1945 .\) At that time, Alcoa controlled about 90 percent of primary aluminum production in the United States, and the company had been accused of monopolizing the aluminum market. In its defense, Alcoa argued that although it indeed controlled a large fraction of the primary market, secondary aluminum (i.e., aluminum produced from the recycling of scrap) accounted for roughly 30 percent of the total supply of aluminum and that many competitive firms were engaged in recycling. Therefore, Alcoa argued, it did not have much monopoly power. a. Provide a clear argument in favor of Alcoa's position. b. Provide a clear argument against Alcoa's position. c. The 1945 decision by Judge Leamed Hand has been called "one of the most celebrated judicial opinions of our time." Do you know what Judge Hand's ruling was?

Suppose a profit-maximizing monopolist is producing 800 units of output and is charging a price of \(\$ 40\) per unit. a. If the elasticity of demand for the product is -2 find the marginal cost of the last unit produced. b. What is the firm's percentage markup of price over marginal cost? c. Suppose that the average cost of the last unit produced is \(\$ 15\) and the firm's fixed cost is \(\$ 2000\). Find the firm's profit.
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free