A monopsonist faces a constant elasticity of labor supply of 1.5.If the monopsonist pays $15 per hour,its marginal expenditure equals
A) $15.
B) $25.
C) $7.
D) 25%.

Question

Quizplus · Accepted Answer

The marginal expenditure (ME) for a monopsonist, when facing a constant elasticity of labor supply (ε), can be calculated using the formula ME = W(1 + 1/ε), where W is the wage rate. Given W = $15 and ε = 1.5, ME = $15(1 + 1/1.5) = $15(1 + 2/3) = $15 * 5/3 = $25.

A Monopsonist Faces a Constant Elasticity of Labor Supply of 1.5.If