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Suppose that the market for primary care physicians (PCPs) has monopsony power. The supply of PCPs is Ls= -500+2W, which can be rewritten as W=0.5Ls +250. The marginal cost of PCPs equals MC=Ls +250 and the (inverse) demand for PCPs is : W=(1000/3)-1/3Ld (based on the same direct demand of PCPs written above: Ld= 1000-3W).

a. Find the equilibrium quantity (number of PCPs) and equilibrium price (wage) under a monopsony and numerically quantify how these values compare to the equilibrium quantity (number of PCPs) and equilibrium price (wage) under a perfectly competitive industry. Find the reported shortage of PCPs.

b. Graph the results. Include horizontal and vertical axes and intercepts, equation slopes, equilibrium values and PCP shortage.

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M91235375

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