A monopsony can hire one worker at a wage of $5,two workers at a wage of $6 each,three workers at $7 each,and so on (each added worker adding one dollar to the wage rate).If the marginal revenue product for all workers is $16,what wage will it pay?
A) $10
B) $11
C) $16
D) $17

Question

Quizplus · Accepted Answer

In a monopsony, the firm will hire additional workers until the marginal revenue product (MRP) equals the marginal factor cost (MFC). Given the MRP is $16, the firm will hire workers up to the point where the wage rate (which increases by $1 for each additional worker) results in an MFC equal to $16. Since each worker added increases the wage by $1 for all workers, and knowing the wage starts at $5 for one worker and increases to $6 for two, $7 for three, and so on, we can deduce that the firm will hire until the wage for each worker is $10. At this wage, hiring an additional worker would increase the wage to $11 for all workers, pushing the MFC above the MRP of $16. Therefore, the firm will pay a wage of $10.

A Monopsony Can Hire One Worker at a Wage of $5,two