Suppose the wage rate is $5, and the marginal revenue product (MRP) of the seventh worker at a yo-yo factory is also equal to $5. The labor market was originally purely competitive, but is then monopsonized without changing the MRP of the seventh worker. That means
A) more workers will be hired but they will be paid lower wages.
B) more workers will be hired and they will be paid higher wages.
C) fewer workers will be hired and they will be paid lower wages.
D) fewer workers will be hired and they will be paid higher wages.

Question

Quizplus · Accepted Answer

When the labor market is monopsonized, the buyer of labor (in this case, the yo-yo factory) has market power and can hire fewer workers at a lower wage rate than in a purely competitive market. Therefore, fewer workers will be hired and they will be paid lower wages. The fact that the MRP of the seventh worker remains at $5 is irrelevant in this case.

Suppose the Wage Rate Is $5, and the Marginal Revenue