A pure monopsony buyer of a resource has a marginal value curve for the resource expressed as: MV = 100 - 0.4Q. Its average expenditure function (and also the market supply function) is: AE = S = 20 + 0.011Q....

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Question

A pure monopsony buyer of a resource has a marginal value curve for the resource expressed
as: MV = 100 - 0.4Q. Its average expenditure function (and also the market supply function) is
AE = S = 20 + 0.011Q.
a. Find the monopsonist's profit maximizing price and quantity.
b. Compute the deadweight loss that results when the firm acts to maximize profit (that is
takes advantage of its monopsony power).
c. Calculate the index of monopsony power that this firm possesses.
d. Calculate the elasticity of supply of the resource

 

Solution ID:350738 | This paper was updated on 26-Nov-2015

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