If a firm is a monopsonistic hirer of labor,
A)its marginal expense for labor is greater than the market wage.
B)its marginal expense for labor is equal to the market wage.
C)its marginal expense for labor is less than the market wage.
D)it is a price taker in the labor market.

Question

Quizplus · Accepted Answer

In a monopsony, the firm has significant control over the labor market and is the sole or dominant employer. This means it faces an upward-sloping labor supply curve. As a result, to hire additional workers, the firm must pay a higher wage not only to the additional workers but also to all the previously hired workers. This makes the marginal expense of labor (the additional cost of hiring one more worker) greater than the wage rate of the last worker hired, because it includes the increased wages for all workers.

If a Firm Is a Monopsonistic Hirer of Labor