FIGURE 14- 5
-Refer to Figure 14- 5.If this labour market is monopsonistic,an increase in the minimum wage from W2 to W3 would

Question

FIGURE 14- 5 
-Refer to Figure 14- 5.If this labour market is monopsonistic,an increase in the minimum wage from W2 to W3 would

Quizplus · Accepted Answer

In a monopsonistic labour market, the employer has market power and can set the wage rate below the marginal revenue product of labour. An increase in the minimum wage would increase the wage rate to W3. This would lead to an increase in the cost of labour for the monopsonist, causing them to hire fewer workers. As a result, there would be unemployment where there previously was none.