Learning Path
Question & Answer1
Understand Question2
Review Options3
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Explore TopicChoose the Best Answer
A
The marginal revenue product of labor equals the wage paid to workers.
B
The wage paid to workers exceeds the marginal revenue product of labor.
C
The wage paid to workers is less than the marginal revenue product of labor.
D
The marginal revenue product of labor is irrelevant to wage determination.
Understanding the Answer
Let's break down why this is correct
Answer
In a monopsony market, there is only one buyer of labor, which gives this buyer significant power over wage rates. The marginal revenue product of labor (MRP) refers to the additional revenue generated from hiring one more worker. In a monopsony, the employer pays a wage that is lower than the MRP because they have to attract workers without competing with other employers. For example, if a factory produces toys and each additional worker adds $100 in revenue, the monopsonist might only offer $80 as a wage, since they are the only employer in the area. This difference shows how the employer's power affects wages, as they can pay less than the value that workers bring to the company.
Detailed Explanation
In a monopsony, the wage paid to workers is lower than the value they create. Other options are incorrect because This suggests that workers are paid exactly what they produce; This implies that wages are higher than what workers produce.
Key Concepts
Wage determination
Marginal revenue
Topic
Monopsony and Marginal Analysis
Difficulty
medium level question
Cognitive Level
understand
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