Monopsony & Least Cost Rule

In order to hire the least-cost combination of labor and capital, the firm must do which of the following? 

• Find the combination of labor and capital where the marginal product of labor is equal to the marginal product of capital 
• Find the combination of labor and capital where the ratio of the marginal product of labor to the marginal product of capital is equal to one 
• Find the combination of labor and capital where the marginal product of labor divided by the price of labor is equal to the marginal product of capital divided by the price of 
  capital 
• Find the combination of labor and capital where the price of labor is equal to the price of capital 

A firm produces truffles by using labor and capital. The price of labor is $10 per unit, and the price of capital is $20 per unit. At current output level, the marginal product of labor is 40 truffles and the marginal product of capital is 60 truffles. To reduce the total cost of producing the current quantity, how should the firm change its spending on labor and capital?

• Labor: no change
  Capital: increase
• Labor: no change
  Capital: no change
• Labor: increase
  Capital: decrease
• Labor: decrease
  Capital: increase

In the monopsonistic labor market shown in the diagram, which of the following indicates the number of workers the firm will hire and the wage rate it will pay, respectively? 

• L1, W1
• L1, W3
• L2, W2
• L1, W2

In the diagram, what would be the competitive quantity of workers hired and wages, respectively?

• L2, W4
• L1, W3
• L2, W2
• L1, W2

The graph shows the conditions that a monopsonist faces in a labor market. How many workers would this monopsonist hire and what wage rate would it pay, respectively? 

• 5, $37.50
• 10, $30
• 10, $20
• 14, $24

A coffee entrepreneur is employing labor and capital to run a coffee kiosk. At the current mix of inputs, the marginal product of labor is 50 cups per hour and the marginal product of capital is 150 cups per hour. The price of labor is $10 per hour and the price of capital is $30 per hour. To minimize costs without changing the output, the firm should: 

• make no changes
• employ less labor and less capital
• employ more labor and less capital
• employ less labor and more capital

An entrepreneur is employing labor and capital to produce a product. The wage rate is $8 per unit and the rent for capital is $10 per unit. The marginal product of labor is 40 units and the marginal product of capital is 60 units. To minimize costs without changing its output, the firm should: 

• make no changes
• employ less labor and less capital
• employ more labor and less capital
• employ less labor and more capital

If a monopsony labor market suddenly were transformed into a perfectly competitive labor market, how would the wage and the number of workers employed change? 

• Both would decrease
  
• Both would increase
  
• The wage would fall, but employment would increase
  
• The wage would rise, but employment would decrease