The figure given below represents equilibrium in the labor market with the demand and supply curves of labor. Figure 28.6 In the figure,
D = MRP implies demand for labor = Marginal Revenue Product
MFC represents Marginal Factor Cost curve
S represents the supply curve of labor
Refer to Figure 28.6.Calculate the quantity of labor hired by a monopsonist.

Question

The figure given below represents equilibrium in the labor market with the demand and supply curves of labor. Figure 28.6  In the figure,
D = MRP implies demand for labor = Marginal Revenue Product
MFC represents Marginal Factor Cost curve
S represents the supply curve of labor
Refer to Figure 28.6.Calculate the quantity of labor hired by a monopsonist.

Quizplus · Accepted Answer

A monopsonist is a single buyer of labor in a market. It has the power to set the wage rate, but must also take into account the impact of its wage rate on the quantity of labor supplied. In order to maximize its profits, a monopsonist will hire labor up to the point where the marginal factor cost (MFC) equals the marginal revenue product (MRP). In the given figure, the point where MFC and MRP intersect is at a wage rate of $10 and a quantity of labor of 75. Therefore, the monopsonist will hire 75 laborers.

The Figure Given Below Represents Equilibrium in the Labor Market