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Economics Solution (Short-run equilibrium of monopolistic Graph)

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How does your analysis of value of marginal product (VMP) change if the employer is a monopolist producer of its output but a price-taker in the labor market?

Ans.

Analysis of the value of marginal product (VMP) of labor is its marginal product times the price of output. Given this scenario, in which the employer is a monopolist producer of its output but a price-taker in the labor market, this would be considered perfect competition (as a price-taker), so the employer will not have to lower prices in order to sell additional units of the product.

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Short-run equilibrium of the firm under monopolistic competition. The firm maximizes its profits and produces a quantity where the firm's marginal revenue (MR) is equal to its marginal cost (MC). The firm is able to collect a price based on the average revenue (AR) curve. The difference between the firms average revenue and average cost, multiplied by the quantity sold (Qs), gives the total profit.

in labor market price taker means MPPL*P=Wl where MPPL=marginal physical product of labor , Wl is wage rate

MPPL*P=VMPl = Wl

in product market monoplist producer means MPPL*MRx=Wl where MRx is marginal revenue on selling each unit of ouptput X MPPL*MRx = MRPl

where MRPl is always less then VMPl . hence there will always a monopolistic exploitation which will take place.

References:

(1) http://strategy.sauder.ubc.ca/ross/files/500.pdf

(2)http://tutor2u.net/economics/revision-notes/a2-micro-monopoly.html