Consider an employer that is a monopolist in its product market versus an otherwise comparable employer that is a competitor in its product market.A wage increase will have
A) a comparatively larger effect on employment of the monopolist because the monopolist is the only seller of the good.
B) no effect on employment of the monopolist because the monopolist will simply pass the increase in wage cost on to consumers by charging a higher price.
C) the same effect on employment because the profit maximization condition is MRP = MEL whether the firm is a monopolist or whether it is competitive in the product market.
D) a comparatively smaller effect on employment of the monopolist because the monopolist will be able to pass some of the increase in wage cost on to consumers by charging a higher price.

Question

Quizplus · Accepted Answer

As a monopolist, the employer has market power to charge a higher price for its product. Therefore, the employer can pass some of the increase in wage cost on to consumers by charging a higher price, which reduces the impact of wage increase on its profit margin. This, in turn, implies that the effect of wage increase on employment will be comparatively smaller for the monopolist than for the competitor in its product market.

Consider an Employer That Is a Monopolist in Its Product