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Question
Microeconomics
Posted about 2 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) Deadweight loss increases.
(B) Employment decreases.
(c) Total earnings to workers decrease.
(D) Wages decrease.
(E) Employment increases
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Answer from Sia
Posted about 2 months ago
Solution
a
Monopsony Labor Market: In a monopsony labor market, a single firm is the sole buyer of labor, giving it market power to set wages below the competitive equilibrium
b
Minimum Wage Impact: When a minimum wage is set above the monopsony wage but below the intersection of the marginal revenue product of labor (MRP) and the marginal factor cost of labor (MFC), it can lead to an increase in employment. This is because the firm is forced to pay a higher wage, which can attract more workers and reduce the monopsonistic exploitation
c
Employment Increase: The minimum wage reduces the gap between the wage paid and the MRP, leading to an increase in the quantity of labor employed
Answer
(E) Employment increases
Key Concept
Minimum Wage in Monopsony
Explanation
In a monopsony labor market, setting a minimum wage above the monopsony wage but below the MRP and MFC intersection can increase employment by reducing the firm's market power and attracting more workers.

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