Sia
Question
Macroeconomics
Posted 10 months ago
A minimum wage has been placed on a monopsony labor market that is greater than the monopsony wage, but less than the wage where the marginal revenue product of labor and the marginal factor cost of labor intersect.
What happens as a result of the minimum wage?
Choose 1 answer:
(A) Wages decrease.
(B) Employment increases
(C) Deadweight loss increases.
(D) Employment decreases.
(E) Total earnings to workers decrease.
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Answer from Sia
Posted 10 months ago
Solution
a
Monopsony Labor Market: In a monopsony labor market, there is only one buyer of labor, which gives the employer market power to set wages below the competitive level
b
Minimum Wage Impact: When a minimum wage is set above the monopsony wage but below the wage where the marginal revenue product of labor (MRPL) equals the marginal factor cost of labor (MFCL), it can lead to an increase in employment because the monopsonist is now required to pay a higher wage, which is still below the wage at which they would hire workers where MRPL = MFCL
c
Deadweight Loss: The implementation of a minimum wage in a monopsony market can reduce deadweight loss by moving the wage closer to the competitive equilibrium, where MRPL = MFCL
Answer
B. Employment increases
Key Concept
Minimum Wage in Monopsony
Explanation
A minimum wage set above the monopsony wage but below the competitive wage can increase employment in a monopsony labor market.
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