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Question
Macroeconomics
Posted 4 months ago
Blammo is the only firm in Pamtown where people are employed. The figure below represents the labor market in Pamtown.
If the government of Pamtown imposes a minimum wage of per day in this market, how much labor is employed?
Choose 1 answer:
(A) 400 workers
(B) 600
(C) 300 workers
(D) 200 workers
(E) 500
Related content
A monopsonistic market for labor
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Answer from Sia
Posted 4 months ago
Solution
a
Minimum Wage Impact: Imposing a minimum wage in a monopsonistic market can lead to different outcomes depending on the level of the minimum wage relative to the equilibrium wage rate
b
Determining Employment Level: To find the quantity of labor employed at the minimum wage of $45, we need to look at the intersection of the minimum wage line with the Supply of Labor (Sl) curve, as firms will hire up to the point where the wage rate equals the marginal revenue product of labor
Answer
300 workers
Key Concept
Minimum Wage in Monopsony
Explanation
In a monopsonistic market, a minimum wage set above the equilibrium wage can increase employment if it is below the marginal revenue product of labor at the quantity of labor where the supply curve intersects the minimum wage line. In this case, the minimum wage of $45 intersects the supply curve at the employment level of 300 workers, which is the new quantity of labor employed.
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