The wage rate that a monopsonist would find most profitable is the wage
A)At the intersection of the marginal wage curve and the marginal cost curve.
B)On the labor supply curve corresponding to the level of employment at which the marginal factor cost curve (for labor)intersects the labor demand curve.
C)On the labor demand curve corresponding to the level of employment at which the marginal factor cost equals market supply.
D)On the labor demand curve at the wage where the marginal factor cost curve intersects the demand curve for labor.

Question

Quizplus · Accepted Answer

A monopsonist maximizes profit by employing labor up to the point where the marginal factor cost (MFC) of labor equals the marginal revenue product (MRP) of labor, which is represented by the labor demand curve. The wage rate that corresponds to this level of employment is found on the labor supply curve, not at the intersection of the MFC and the labor demand curve. This is because a monopsonist faces an upward-sloping labor supply curve, meaning that to hire additional workers, the monopsonist must pay a higher wage not only to the additional workers but also to all the previously hired workers.

The Wage Rate That a Monopsonist Would Find Most Profitable