If the market demand elasticity is constant at -3 and a monopolist's MPL = 1.2L^-0.5,then the labor demand for the monopoly is A)0.8PL^-0.5. B)0.4PL^-0.5. C)0.8PL^-2. D)0.4PL^-2.

Question

Quizplus · Accepted Answer

The labor demand for a monopoly is derived from the marginal revenue product of labor (MRPL), which is the product of the marginal product of labor (MPL) and marginal revenue (MR). Given constant elasticity of demand, MR = P(1 + 1/elasticity). With elasticity of -3, MR = P(1 - 1/3) = 0.67P. Therefore, MRPL = MPL * MR = 1.2L^-0.5 * 0.67P = 0.8PL^-0.5.

If the Market Demand Elasticity Is Constant at -3 and a Monopolist's