Payroll tax on non-discriminating monopsonist

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A non-discriminating monoponist firm’s demand for labor can be written as VMPE = 30 - 0.005E. Labor is supplied to the firm according to w = 5 + 0.01E. Thus the firm’s marginal cost of hiring workers when it hires off of this supply schedule is MCE = 5 + 0.02E. a. How many workers should the firm hire? What wage will the firm pay? b. What happens to wages and employment if the government imposes a payroll tax on the non-discriminating monopsonist? Use a graph and your argument to explain.

Reference no: EM131392979

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