AP® Microeconomics · Free response

The only employer of stone cutters: monopsony hiring compared with a competitive labor market

write it first, then score yourself point by point

Short free-response question · four-function calculator · 5 points · about 12 minutes

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The question

Name: ______________________   Date: ____________   The only employer of stone cutters: monopsony hiring compared with a competitive labor market (5 points)

Corbie Stone Works (invented) is the only employer of stone cutters in a remote town, so it is a monopsony in that labor market. It sells its stone in a perfectly competitive market and maximizes profit.

  1. (A) Draw a correctly labeled graph of the labor market for stone cutters, showing the labor supply curve, the marginal factor cost curve and the marginal revenue product curve. Show the number of cutters Corbie hires and the wage it pays. [2 points]

  2. (B) On your graph, show the number of cutters that would be hired, and the wage, if the labor market for stone cutters were perfectly competitive. [1 point]

  3. (C) Shade the deadweight loss that results from Corbie hiring fewer cutters than a competitive labor market would. [1 point]

  4. (D) Explain why Corbie's marginal factor cost of labor is greater than the wage it pays. [1 point]