Suppose that a monopsonist increases the number of workers hired from 10 to 11.If the market wage increases from $20 per worker to $21 per worker, the marginal factor cost for the eleventh worker is:

Question

Quizplus · Accepted Answer

When a monopsonist hires an additional worker, it must increase the wage rate for all workers, not just the additional worker. Therefore, the cost of hiring the eleventh worker includes not just the wage paid to the eleventh worker, but also the increase in the wage rate paid to the first ten workers.

Marginal factor cost (MFC) is the additional cost incurred by the monopsonist when it hires an additional worker.

MFC = Δ Wage / Δ Quantity

In this case,

Δ Wage = $21 - $20 = $1

Δ Quantity = 11 - 10 = 1

MFC = $1 / 1 = $1

But this is just the increase in the wage for the eleventh worker. To calculate the total MFC, we need to include the increase in the wage paid to the first ten workers.

Total MFC = 10 x $1 + $1 = $11

Therefore, the correct answer is C) $31.

Suppose That a Monopsonist Increases the Number of Workers Hired