Use the following to answer question(s): Minimum Wage and Monopsony

-(Exhibit: Minimum Wage and Monopsony) If a $30 minimum wage is imposed, the monopsony firm in the exhibit would maximize profits by hiring _______ units of labor per period.

Question

Use the following to answer question(s): Minimum Wage and Monopsony
 
-(Exhibit: Minimum Wage and Monopsony) If a $30 minimum wage is imposed, the monopsony firm in the exhibit would maximize profits by hiring _______ units of labor per period.

Quizplus · Accepted Answer

When a minimum wage is imposed, the wage rate is set above the market equilibrium level. As shown in the exhibit, the minimum wage of $30 is above the monopsony's marginal labor cost curve (MLC), which means it is also above the supply curve of labor. In this case, the monopsony will hire less labor than it would if there were no minimum wage. To maximize profit, the monopsony firm will hire the quantity of labor where the marginal cost of labor (MCL) equals the minimum wage. At this quantity, the MCL curve intersects the MLC curve at point L₂, and thus the optimal employment level for the monopsony is L₂.

Use the Following to Answer Question(s): Minimum Wage and Monopsony