Multiple Choice
Suppose a monopsonist finds that the market price of its output has doubled, and to increase production to the new profit-maximizing level it has to double the wage to get more workers. How much, if any, does the return to monopsony power change?
A) It increases by the number of new workers needed.
B) It increases by the difference between the new wage and the old wage, multiplied by the number of workers.
C) It decreases by the difference between the new wage and the old wage, multiplied by the number of workers.
D) It increases, but we cannot say by how much.
E) It doubles.
Correct Answer:
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