Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It decreases both marginal cost and marginal revenue
B
It increases marginal cost but does not affect marginal revenue
C
It increases both marginal cost and marginal revenue
D
It decreases marginal cost while increasing marginal revenue
Understanding the Answer
Let's break down why this is correct
Answer
In a monopsony market, there is only one buyer for labor, which means that the firm has significant control over wages. When the government intervenes, for example by setting a minimum wage, it can change the costs for the firm. This minimum wage can increase the marginal cost of hiring each additional worker because the firm now has to pay a higher wage than before. As a result, the firm may hire fewer workers than it would have at the lower wage, which affects its marginal revenue, or the extra money it earns from hiring more labor. For instance, if a monopsonist was paying workers $10 an hour and the government sets a minimum wage of $12, the firm’s cost of hiring increases, and it may decide to reduce the number of workers it employs, impacting its overall profitability.
Detailed Explanation
In a monopsony, the firm is the only buyer of labor. Other options are incorrect because This answer suggests that costs and revenue go down; This option says costs go up but revenue stays the same.
Key Concepts
Marginal cost
Marginal revenue
Government intervention
Topic
Monopsony and Marginal Analysis
Difficulty
hard level question
Cognitive Level
understand
Ready to Master More Topics?
Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.