Firm A is a monopsonist that faces a labor supply elasticity of 2.4 whereas Firm B is a monopsonist that faces a labor supply elasticity of 1.4.Which of these monopsonists has a higher markup over wage?
A) Firm A
B) Firm B
C) They both pay the same.
D) It is impossible to tell which pays a higher wage.

Question

Quizplus · Accepted Answer

The markup over wage for a monopsonist is determined by the formula M = (1/ES) - 1, where ES is the labor supply elasticity. The higher the ES, the lower the markup. Therefore, firm B, with a labor supply elasticity of 1.4, has a higher markup than firm A, which has a labor supply elasticity of 2.4.

Firm a Is a Monopsonist That Faces a Labor Supply