BigBiz, a local monopsonist, currently hires 50 workers and pays them $6 per hour. To attract an additional worker to its labor force, BigBiz would have to raise the wage rate to $6.25 per hour. What is BigBiz's marginal factor cost?

Question

Quizplus · Accepted Answer

The marginal factor cost is the additional cost of hiring one more worker. BigBiz must raise the wage for all 51 workers to $6.25, so the total cost increases from $300 (50 workers x $6) to $318.75 (51 workers x $6.25). The marginal factor cost is $318.75 - $300 = $18.75.

BigBiz, a Local Monopsonist, Currently Hires 50 Workers and Pays