The union representing the bread makers at the Hostess Bread Company went on strike and demanded higher wages than what the firm wanted to pay. I. If the firm is in a competitive labor market the union can only raise wages by decreasing employment.
II) If the firm is a monopsony in the labor market the union can only raise wages by decreasing employment.
III) If the firm is a monopsony in the labor market the union can both raise wages and increase employment.

Question

Quizplus · Accepted Answer

In a competitive labor market, raising wages typically leads to decreased employment (I). In a monopsony, the union can potentially raise wages and increase employment because the firm has market power to set wages below competitive levels (III).

The Union Representing the Bread Makers at the Hostess Bread