The figure given below represents equilibrium in the labor market with the demand and supply curves of labor. Figure 14.6 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
According to Figure 14.6, if the government imposes a minimum wage of $15, what quantity of labor will a competitive firm and a monopsonist, respectively, hire?

Question

The figure given below represents equilibrium in the labor market with the demand and supply curves of labor. Figure 14.6  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
According to Figure 14.6, if the government imposes a minimum wage of $15, what quantity of labor will a competitive firm and a monopsonist, respectively, hire?

Quizplus · Accepted Answer

The minimum wage of $15 creates a price floor in the labor market, which leads to disequilibrium. At this price floor, the quantity of labor supplied exceeds the quantity demanded. 
For a competitive firm, the quantity of labor hired will remain the same as before (50), as the firm was already paying a wage equal to the market wage rate. 
For a monopsonist, the quantity of labor hired will decrease to 125. This is because the monopsonist was previously paying a wage lower than the market wage rate (at point A on the MFC curve), and can hire more workers at a higher wage. However, the minimum wage of $15 is now higher than the monopsonist's MFC curve, so the monopsonist will hire less labor than before. 
Therefore, the quantity of labor hired by a competitive firm and a monopsonist, respectively, would be 50 and 125 at a minimum wage of $15.

The Figure Given Below Represents Equilibrium in the Labor Market