Suppose Alcoa, Inc. is a monopsonist employer in the town of Alcoa, TN. Using the concept of marginal factor cost, each time Alcoa increases the number of workers it hires, it will pay a _____, marginal factor cost.

Question

Quizplus · Accepted Answer

In a monopsony, where a single buyer (in this case, employer) dominates the market, hiring additional workers requires the employer to raise wages not just for the additional workers but for all existing workers as well. This leads to a situation where the marginal factor cost (the additional cost of hiring one more worker) is higher than the wage of the newly hired worker because it includes the increased wages for all workers.