12. If the firm whose data are depicted in Figure 2 acts as a profit maximizer it will choose which of the following wage-labor combinations? Clearly this firm is a monopsonist which is why it faces a Marginal Factor Cost (MFC) curve above the Labor supply curve (L_S). It is the only firm hiring labor in the area, or it is the only firm which hires labor with certain skills.

a.		Wage = W₂ and Labor = N₃. If the firm offers wage W₂ and hires N₃, the cost of hiring all the workers greater than N₂ in number exceeds the added revenue they generate. Indeed by hiring at this point it incurs unnecessary losses equal to the shaded area on the graph to the left. In other words, above N₂ workers MFC > MRP
b.		Wage = W₁ and Labor = N₂. Only a wage of W₃ is required to hire N₂ workers so right off the firm is paying too much. At a wage of W₁ the firm could hire as many as N₄ workers. If it insists on doing this anyway it is spending far more on labor that is needed thus reducing its profits by an amount equal to the shaded area to the left.
c.		Wage = W₃ and Labor = N₃. As we can see from the graph to the left, this isn't even a possibility. At a wage of W₃ only N₂ workers are willing to accept the job.
d.		Wage = W₃ and Labor = N₂. This is correct because at this point the marginal cost of an added worker equals her added benefit.
e.		Wage = W₂ and Labor = N₁ A wage of W₂ is far greater than what is needed to hire n₁ workers and, as we saw in answer a. W₂ is too high a wage anyway.