Question

Black Diamond is a coal mining company and their labor demand and supply functions are given below:

W = 100 - .01 * L
W = 10 + .01 * L
W= annual salary in thousand dollars
L= number of employees
Assume Black Diamond is the only employer in the town where they are located. Answer the following questions
a. Calculate the monopolistic salary and the perfectly competitive salary.

Answer 1

To calculate the monopolistic salary, we need to find the level of employment where the firm's demand for labor is equal to the value of marginal product or marginal revenue product which is equal to the marginal cost of labor. To calculate the perfectly competitive salary, we need to consider the going market wage and determine the firm's profit maximizing level of employment.

Step-by-step explanation:

To calculate the monopolistic salary, we need to find the level of employment (Lm) where the firm's demand for labor (DL) is equal to the value of marginal product (VMP) or marginal revenue product (MRP) which is equal to the marginal cost of labor (MCL). Once we find the value of Lm, we can use the supply curve for labor to determine the wage (Wm) the firm has to pay to attract Lm workers. On the other hand, to calculate the perfectly competitive salary, we need to consider the going market wage of $12 and determine the firm's profit maximizing level of employment.