Department of Economics

Competitive and Monopsonistic Wage Determination




Part A. A Competitive Market for Nurses

The market for nurses in Zenith, Ohio is perfectly competitive. The equations for the supply and demand curves are as follows:

Demand: L = 200/W

Supply: L = 100W-100

where W is the hourly wage rate and L is the quantity of labored measured in person-hours per day.

1. In order for any nursing services to be supplied in this market W must be greater than.

2. What are the equilibrium values for W and L?

3. What is the daily income of nurses as a group in this equilibrium?

4. What do you think will happen to the demand for nurses in Zenith if several of its large heavy manufacturing plants were to close down due to Japanese competition? Increase Decrease


Part B. A Monopsonistic Market for Nurses

The market for nurses in Monarch, Ohio is monopsonistic, the only employer being Ohio General Hospital (OGH). The equations for OGH's value of marginal product curve and the market supply curve are as follows:

Value of Marginal Product: VMP = 23 - (1/100)*L

Supply: L = 100W-500

5. What is the equation for OGH's marginal outlay on labor curve ?

6. What is OGH's profit maximizing L ?

7. What wage does it offer ?

8. How large is the nurse "shortage" at this wage ?