Suppose a monopsonist currently employs 100 workers at a wage of $400 per week. If the firm wants to expand employment to 110 workers, and the 110th worker will only work for $450 per week, what is the approximate marginal factor cost of the 110th worker?

Question

Quizplus · Accepted Answer

The marginal factor cost of hiring the 110th worker is the increase in total wage expenditure when the firm increases employment from 109 to 110 workers. Since the 110th worker will only work for $450 per week, this means that the firm will have to raise the wage rate for all 110 workers from $400 to $450 per week.

The increase in wage expenditure for the 110th worker can be calculated as follows:

MFC = (110 workers x $450 per week) - (109 workers x $400 per week) 
MFC = $49,500 per week - $43,600 per week 
MFC = $5,900 per week

Therefore, the approximate marginal factor cost of hiring the 110th worker is $5,900 per week. The closest answer choice is C, $950 per week, which is one-tenth of the correct answer.

Suppose a Monopsonist Currently Employs 100 Workers at a Wage