Exhibit 27-11

Refer to Exhibit 27-11. The firm in the exhibit is a monopsony. We have deliberately not identified the three curves in the exhibit. They are simply curves 1, 2, and 3. If (union) collective bargaining with the monopsony guarantees the wage rate that workers will be paid is W₂, then how many more workers will the monopsony hire than it would hire if it could pay its chosen (or preferred) wage?

Question

Exhibit 27-11

Refer to Exhibit 27-11. The firm in the exhibit is a monopsony. We have deliberately not identified the three curves in the exhibit. They are simply curves 1, 2, and 3. If (union) collective bargaining with the monopsony guarantees the wage rate that workers will be paid is W₂, then how many more workers will the monopsony hire than it would hire if it could pay its chosen (or preferred) wage?

Quizplus · Accepted Answer

The monopsony will hire workers up to the point where the marginal cost of labor (MC) equals the monopsony's chosen (or preferred) wage rate (Wm). Without union collective bargaining, the monopsony would pay the wage rate of WS2U2B22S1U1B0 and hire the quantity of labor QO. With union collective bargaining, the monopsony will pay the wage rate of WS1U1B12S1U1B0 and hire the quantity of labor QS. The difference in quantity hired is therefore QS1U1B12S1U1B0 - QO = QS1U1B12S1U1B0 - QS2U2B22S1U1B0 = QS1U1B12S1U1B0 - QS1U1B11S1U1B0. Therefore, answer C is correct.

Exhibit 27-11 ​ Refer to Exhibit 27-11. the Firm in the Exhibit Is

Exhibit 27-11 Refer to Exhibit 27-11. the Firm in the Exhibit Is