Exhibit 27-10 Refer to Exhibit 27-10. If the firm in the exhibit is a monopsony, then the difference between its marginal factor cost and the wage rate it pays is equal to A)W₄ - W₂. B)W₃ - W₂. C)W₄ - W₁. D)W₃ - W₁. E)There is no difference between the marginal factor cost and the wage rate a monopsony pays.

Question

Quizplus · Accepted Answer

In a monopsony, the firm has market power in the labor market and faces an upward sloping supply curve for labor. The firm's marginal factor cost (MFC) is the additional cost of hiring one more unit of labor, while the wage rate it pays is the cost of hiring all units of labor. The difference between the MFC and the wage rate represents the additional cost the firm incurs for the last unit of labor, which is equal to the supply price of that unit of labor. In the exhibit, the firm hires labor up to the point where the MFC equals the market wage rate W₂. However, if the firm wants to hire one more unit of labor, it has to increase the wage rate it pays to all units of labor to W₃. Therefore, the difference between the MFC and the wage rate the firm pays for the last unit of labor is W₃ - W₁, which is equal to the supply price of the last unit of labor. The choice D is the only option that matches this calculation.

Exhibit 27-10 ​ Refer to Exhibit 27-10. If the Firm in the Exhibit

Exhibit 27-10 Refer to Exhibit 27-10. If the Firm in the Exhibit