Lorna's Lumberyard is a monopsony. Lorna estimates that at a wage of $10, 100 workers would be willing to work for her. Similarly, at a wage of $12, 200 workers would be willing to work. Her marginal factor cost is:

Question

Quizplus · Accepted Answer

Marginal factor cost (MFC) is the additional cost of hiring one more unit of labor. 
Using the midpoint formula, we can calculate the MFC: 
MFC = (change in wage / change in quantity) * (quantity / wage)

MFC = ($12 - $10) / ((200 - 100) / 2) * (100 + 200) / 2 
MFC = $2 / 50 * 150 
MFC = $6

Therefore, the MFC is $6, which means that Lorna's best choice is to increase the wage to $12, as at this wage she will be able to hire more workers while still paying less than the MFC.

Lorna's Lumberyard Is a Monopsony