Question

The employment of teaching assistants (TAs) by major universities can be characterized as a monopsony. Suppose the demand for TAs is \(W=30,000-125 n\) where \(W\) is the wage (as an annual salary) and \(n\) is the number of TAs hired. The supply of TAs is given by \(W\) \(=1000+75 n\) a. If the university takes advantage of its monopsonist position, how many TAs will it hire? What wage will it pay? b. If, instead, the university faced an infinite supply of TAs at the annual wage level of \(\$ 10,000,\) how many TAs would it hire?

Short answer

a) In the monopsony case, the university will hire n TAs and pay a wage of W dollars each. b) With an infinite supply at a wage of $10,000 per annum, the university will hire n TAs.

Step-by-step solution

Determine the Quantity and Wage as a Monopsonist

As a monopsonist, the university balances the marginal cost of hiring an additional TA with the marginal benefit. This is represented by the equation: \(W=30,000-125 n\) = \(1000+75 n\). This equation sets supply equal to demand. Solve this equation to find the number of TAs hired in a monopsony situation.

Calculate the Wage rate in a Monopsony Position

After finding the number of TAs hired, insert this quantity into either the supply or demand equation to find the equilibrium price, which will be the wage rate in the monopsony.

Calculate the Quantity When Wage Is $10000

In the case where the university faces an infinite supply of TAs at the annual wage level of $10,000, we determine the quantity demanded by the university by inserting this wage into the demand equation \(W=30,000-125 n\).

Key concepts

Labor Market

A labor market is a place where workers sell their labor, and employers buy it. It's like a marketplace where the exchange involves work for wages. In a perfect labor market, many employers compete for workers, leading to fair wages. However, not all labor markets are perfect.
In some cases, such as the employment of Teaching Assistants (TAs) by universities, the market can resemble a monopsony. A monopsony is when there is only one buyer in the market – in this case, the university is the only buyer of TA labor. This creates a unique labor market structure where the university can influence wages and employment levels more than in a competitive market.

• In competitive labor markets, many employers and workers lead to fair wage discoveries.
• In a monopsony, the single employer has more power to set wages lower.
• Labor supply and demand still dictate the wage, but the balance of power shifts to the employer.

Understanding a monopsonistic labor market is crucial for comprehending how wages and employment levels are determined under such conditions.

Teaching Assistants

Teaching Assistants (TAs) are students or professionals employed by universities to assist with teaching-related duties. Their roles can range from helping professors with class materials to directly instructing students.
TAs are vital to the education system, often helping large universities manage the academic workload. However, the hiring of TAs can be influenced by the monopsonistic nature of university employment.

• TAs help manage educational tasks, allowing professors to focus on research and advanced teaching.
• Employment of TAs can be limited by budget constraints and the administrative decisions of the university.
• The labor market for TAs can be influenced by the number of postgraduate students, funding availability, and demand for specific programs.

As TAs are in an employment scenario with fewer employers, universities can exert more control over their compensation, demonstrating the effects of a monopsonist labor market.

Wage Determination

Wage determination involves figuring out what workers are paid and can vary greatly depending on the structure of the labor market. In a monopsonistic market like the university hiring TAs, the wage is often less than it might be in a more competitive market.
In this scenario, the wage is determined by the balance between labor supply and demand, but with the employer having more dominance:

• Wages are generally lower in monopsonistic environments because the single employer has the power to limit wage increases.
• The supply curve, representing TA willingness to work at various wage levels, interacts with the demand curve from the university’s hiring needs.
• The point where these curves meet decides the number of TAs hired and their wage rate.

If there's a shift, such as an infinite supply of TAs at a set wage, this can further impact the wage level and hiring quantity, illustrating the importance and impact of wage determination strategies in a monopsony setting.