Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Wages will decrease due to increased supply of labor
B
Wages will remain unchanged since the monopsonist controls the market
C
Wages will increase as the monopsonist needs to attract more workers
D
Wages may decrease if the marginal revenue product of labor falls below the wage rate
Understanding the Answer
Let's break down why this is correct
Answer
In a monopsonistic labor market, there is only one employer for many workers, which gives that employer a lot of power over wages. When the monopsonist decides to hire an additional worker, they usually must raise the wage for all workers to attract that extra worker. This happens because the employer needs to offer a higher wage to make the job more appealing compared to other options workers might have. For example, if a factory owner wants to hire one more worker, they might increase the wage from $15 to $16 an hour to convince someone to join the team. As a result, even though they are hiring one worker, the overall wage for all workers may increase due to the monopsonist's need to attract talent.
Detailed Explanation
When a monopsonist hires more workers, they may lower wages if the extra worker's value is less than what they pay. Other options are incorrect because Some might think that hiring more workers means more supply, which lowers wages; It's a common belief that the monopsonist can keep wages the same.
Key Concepts
Monopsony
Labor Market Dynamics
Marginal Revenue Product
Topic
Understanding Monopsonies
Difficulty
medium level question
Cognitive Level
understand
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