The difference between the marginal expenditure and the wage is greater when the supply curve of labor is
A) less elastic at the monopsony optimum.
B) more elastic at the monopsony optimum.
C) more elastic than the demand curve.
D) The difference does not depend on any elasticity.

Question

Quizplus · Accepted Answer

When the supply curve of labor is less elastic at the monopsony optimum, the firm has more market power to set the wage below the marginal expenditure. This results in a greater difference between the two.

The Difference Between the Marginal Expenditure and the Wage Is