Two employers,A and B,pay the same wage but Employer A faces a more inelastic supply curve of labor than Employer B.Both firms are monopsonies but have similar outputs and technologies.Other things being the same,then in the long run
A) Employer A will employ less capital than Employer B.
B) Employer A will employ more capital than Employer B.
C) Both employers will employ the same amount of capital.
D) Both firms, in the long run, will pay a wage equal to their marginal revenue product.

Question

Quizplus · Accepted Answer

Since Employer A faces a more inelastic supply curve of labor, it means that it will have to pay a higher wage than Employer B to attract the same quantity of labor. As a result, Employer A will want to substitute labor for capital to reduce its wage bill. Therefore, over time, Employer A will employ more capital than Employer B to achieve the same level of output with fewer workers. Both firms will pay a wage equal to their marginal revenue product in the long run, but this does not affect the choice between the two employers when it comes to employing capital.

Two Employers,A and B,pay the Same Wage but Employer a Faces