Why does a monopsony increase employment when faced with an effective minimum wage law?

What will be an ideal response?


A monopsony hires the quantity of labor so that the value of marginal product of labor (VMP) is equal to the marginal cost of labor (MCL). This condition means that initially the VMP is above the wage (W). When a minimum wage is imposed, the marginal cost of labor decreases because it becomes equal to the minimum wage. Thus, the firm will hire more workers up to the point at which VMP = W.

Economics

You might also like to view...

Only realized capital gains are included in taxable income.

A. True B. False C. Uncertain

Economics

A decrease in ________ increases the money supply since it causes the ________ to rise

A) reserve requirements; monetary base B) reserve requirements; money multiplier C) margin requirements; monetary base D) margin requirements; money multiplier

Economics

Suppose a profit-maximizing firm in a competitive market produces rubber bands. When the market price for rubber bands falls below the minimum of its average total cost, but still lies above the minimum of average variable cost, in the short run the firm will

a. experience losses but will continue to produce rubber bands. b. shut down. c. earn both economic and accounting profits. d. raise the price of its product.

Economics

Goods that are not rival in consumption, but are excludable are:

A. a common resource. B. an artificially scarce good. C. a public good. D. a private good.

Economics