Relative to a perfectly-competitive labor market, a monopsonized one:
A) Pays higher wages and hires more workers.
B) Pays higher wages and hires fewer workers.
C) Pays lower wages and hires more workers.
D) Pays lower wages and hires fewer workers.

Question

Quizplus · Accepted Answer

In a monopsony, there is only one buyer of labor, which gives the employer market power to influence the wage rate. The employer faces an upward-sloping supply of labor curve, which means that it has to pay a higher wage to attract additional workers. However, since the employer has market power, it can choose to hire fewer workers and pay them a lower wage than in a perfectly competitive market. Therefore, a monopsony pays lower wages and hires fewer workers than a perfectly competitive market.

Relative to a Perfectly-Competitive Labor Market, a Monopsonized One