Question 1

Relative to a competitive labor market,monopsony

Accepted Answer

Monopsony creates a deadweight loss because it pays a wage below the marginal revenue product of labor, leading to a reduction in the level of employment and output below the socially efficient level. Therefore, compared to a competitive labor market, monopsony is not efficient. Option A is incorrect as it contradicts the deadweight loss due to monopsony; option B is incorrect as it assumes that monopsony pays excessive wages, which is not the case; option D is also incorrect as it assumes that the monopsonist pays above the wage rate, which is not the case.

Question 2

If the supply of labor to a monopsonist is everywhere unit elastic,then the wage will equal

Accepted Answer

The answer of If the supply of labor to a...

Question 3

Universities are able to act as monopsonists in the market for professors because

Accepted Answer

Universities can act as monopsonists in the market for professors partly because faculty members often face significant barriers to changing jobs, such as the need to relocate to a different city. This geographic immobility reduces the competition among employers (universities) for academic labor, allowing universities to have more power in setting terms of employment.

Question 4

Because of market power,wages are higher under monopsony than under competitive conditions.

Accepted Answer

Because of market power,the monopsonist pays a lower wage than is paid in a competitive market.

Question 5

If a firm buys some labor in a competitive market and some labor as a monopsonist,the firm is most likely to

Accepted Answer

In a competitive market, firms are price takers, including for wages, meaning they pay the market wage. As a monopsonist (a single buyer in the market), the firm has power to set wages and typically pays a lower wage than in competitive markets. Therefore, the firm is likely to pay a higher wage to the labor purchased in the competitive market compared to what it pays in a market where it has monopsony power.

Question 6

If the supply of labor to a monopsonist is everywhere unit elastic,and the marginal expenditure equals $1,then the wage will equal

Accepted Answer

The answer of If the supply of labor to a...

Question 7

Why does a monopsonist's marginal expenditure curve lie above the labor supply curve?

Accepted Answer

The answer of Why does a monopsonist's marginal expenditure curve...

Question 8

If a firm takes the wage as given,then the supply curve of labor to that firm is

Accepted Answer

The supply curve of labor to a firm that takes the wage as given is horizontal, indicating that the firm can hire as many workers as it wants at the market wage rate.

Question 9

The difference between the marginal expenditure and the wage is greater when the supply curve of labor is

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.

Question 10

A monopsonist faces an upward-sloping labor supply curve.This means that his marginal expenditures on labor are

Accepted Answer

A monopsonist, as the sole buyer of labor in a market, faces an upward-sloping labor supply curve. This means to hire additional workers, the monopsonist must increase the wage rate, which applies to all workers, not just the additional ones. Therefore, the marginal expenditure on labor (the additional cost of hiring one more worker) is greater than the wage of the last worker hired because it includes the increased wages for all the previously hired workers as well. This makes all the statements correct.

Question 11

For a monopsonist,the labor supply curve is upward sloping because

Accepted Answer

The answer of For a monopsonist,the labor supply curve is...

Question 12

The steeper the labor supply curve,

Accepted Answer

The steeper the labor supply curve, the more market power the monopsonist has in setting wages. Therefore, the monopsonist can lower the wage it pays to workers without experiencing a large decrease in the quantity of labor it hires. This means that the lower the wage the monopsonist pays, the more elastic the labor supply curve becomes, resulting in a steeper curve. Thus, the best answer is B - the lower the wage the monopsonist pays.

Question 13

If a firm takes the wage as given,then the firm's marginal expenditure on labor curve is

Accepted Answer

If a firm takes the wage as given, then it cannot affect the wage rate by hiring more or fewer workers. Therefore, the marginal expenditure on labor curve will be the same as the labor supply curve since it represents the additional cost of hiring one more worker at each level of employment.

Question 14

Suppose a monopoly producer is also a monopsonist in the labor market.Demand for the output is p = 100 - Q.The production function is Q = L,and the labor supply curve is
w = 10 + L.How much labor does the firm hire? What wage is paid?

Accepted Answer

The answer of Suppose a monopoly producer is also a...

Question 15

For the monopsonist,marginal expenditure is greater than the wage rate because the monopsonist

Accepted Answer

A monopsonist must increase the wage rate for all units of labor to attract additional units of labor, which means the cost of hiring an additional unit of labor (marginal expenditure) is higher than the wage rate paid to that last unit of labor.

Question 16

Under monopsony,the wage rate

Accepted Answer

Under monopsony, the employer has bargaining power due to the presence of a limited number of buyers of labor. As a result, the wage rate offered by the employer is less than the marginal revenue product of labor. This is because the employer can hire more workers at a lower wage rate due to the limited job opportunities available to the workers. Therefore, choice C is the correct answer.

Question 17

Because the labor supply curve for a monopsonist is upward sloping,the monopsonist

Accepted Answer

The upward sloping labor supply curve for a monopsonist means that if the monopsonist wants to hire more workers, it must offer a higher wage to attract them. In other words, it cannot simply take the wage as given by the market (D) or hire zero units of labor (A), as both of these choices would result in the monopsonist not hiring any workers. While the perfectly competitive quantity of labor would be a choice if the labor supply curve were horizontal, it is not applicable here (B). Therefore, the correct answer is C.

Question 18

The gap between the value a monopsony places on the last worker hired and the wage paid will increase when

Accepted Answer

When the supply curve becomes less elastic at the optimum, it means that the monopsony has more market power over the workers and can pay them lower wages. This leads to an increase in the gap between the value the monopsony places on the last worker hired and the wage paid. The other options do not necessarily lead to an increase in the gap.

Question 19

Which of the following would be most able to act like a monopsonist?

Accepted Answer

A hospital in a small isolated town is the most likely to act like a monopsonist because it is the only employer in the area, making it the sole purchaser of labor. This gives it more bargaining power and the ability to exert greater control over wages and working conditions in the local market.

Question 20

A monopsonist purchaser of labor that could negotiate a different wage for each worker could

Accepted Answer

By being able to negotiate a different wage for each worker, the monopsonist can identify workers with lower reservation wages and offer them a lower wage, which would increase the quantity of labor demanded. Therefore, the monopsonist could purchase more labor than a regular monopsonist with a fixed wage rate.

Quiz 11: Monopoly and Monopsony