Why does the marginal resource cost exceed the wage rate in the case of a monopolistic firm? Explain and illustrate with an example

Question

What will be an ideal response?

Answer 1

The monopolist is a large employer of a particular type of labor. As the monopolist seeks to obtain more workers, the monopolist must raise the wage rate for all workers, or else labor morale will deteriorate. When the increased wage rate is paid to all workers, the marginal resource cost will diverge from the wage rate because those hired previously at lower wage rates must now be compensated at the new hire wage rate, and this amount makes the marginal cost of hiring a new worker more than the wage rate for that worker.
For example, if the first worker hired by a firm was paid $6 an hour, then the marginal resource cost of the first worker would be $6. If the next worker that was hired required a $7 wage to become employed, then the second worker would cost $7 an hour; however, another $1 an hour would have to be paid to the first worker. Thus the marginal resource cost of the second worker would be $8 an hour instead of just $7. The wage rate and marginal resource cost diverge as the second worker is hired by the monopolist.