Compared to a competitive market, a firm that has a monopsony in a labor market would
A)hire fewer workers and pay higher wages.
B)hire more workers and pay lower wages.
C)hire fewer workers and pay lower wages.
D)hire more workers and pay higher wages.

Question

Quizplus · Accepted Answer

In a monopsony, the firm is the only buyer of labor in the market, and therefore has the power to set the wage rate. The firm will hire fewer workers than it would in a competitive market, but unlike a monopoly, it cannot charge higher prices to consumers to offset the higher wages it pays to its workers. Therefore, the firm will tend to pay lower wages to the workers it does hire.

Compared to a Competitive Market, a Firm That Has a Monopsony