The diagram below shows the supply and demand for labour in a hypothetical town in northern British Columbia,with only one employer,a logging company. FIGURE 14-4
-Refer to Figure 14-4.The wage paid by this monopsonistic firm will be ________ and employment will be ________.

Question

The diagram below shows the supply and demand for labour in a hypothetical town in northern British Columbia,with only one employer,a logging company.  FIGURE 14-4
-Refer to Figure 14-4.The wage paid by this monopsonistic firm will be ________ and employment will be ________.

Quizplus · Accepted Answer

The monopsonistic firm has market power as the only employer in the town, therefore, it can influence the wage rate and the quantity of labour it hires. The firm will hire the quantity of labour where the marginal cost (MC) of labour equals the marginal revenue product (MRP) of labour, which is where the supply and demand curves intersect. In this case, the intersection occurs at a wage rate of $25 per hour and quantity of labour of 750 units. Therefore, the wage paid by the firm will be below $25 per hour and employment will be below 750 units of labour. Choice (D) is the only option that matches this outcome.

The Diagram Below Shows the Supply and Demand for Labour