-The above figure illustrates the case of a monopsony in the labor market. If the current wage paid is W₁ and new wage legislation is passed that increases the minimum wage in this market to W₂, the firm will

Question

-The above figure illustrates the case of a monopsony in the labor market. If the current wage paid is W<sub>1</sub> and new wage legislation is passed that increases the minimum wage in this market to W<sub>2</sub>, the firm will A) hire less labor at the higher wage and, according to the law of demand, moving from point D to B. B) hire the same amount of labor as before the law was passed because it cannot adjust to wage changes. C) hire more labor, moving from point C to B. D) pay a higher wage, moving from point C to A.

Quizplus · Accepted Answer

In a monopsony, the firm is the sole buyer of labor and thus has wage-setting power. When a minimum wage is set above the current wage, it can lead to an increase in employment as the firm moves from paying a lower wage at point C to a higher wage at point B, where the marginal cost of labor equals the new minimum wage.

-The Above Figure Illustrates the Case of a Monopsony in the Labor