This graph illustrates a bilateral monopoly in the labor market (one large busin
ID: 1127725 • Letter: T
Question
This graph illustrates a bilateral monopoly in the labor market (one large business in a small town where most people living in the town work for this large business and all workers have to be a member of a union. Use this graph in answering questions 27 through 30. 27. The large business (monopsonist) will seek to: a. hire Qm workers and pay a wage rate of W b. hire Qm workers and pay a wage rate of w c. hire Q, workers and pay a wage rate of w d. can't be determined 28. The union wants the wage rate to be: a. W C. Wm d. between Wm and W 29. If economic conditions favor the union, the final negotiated wage rate will be closer to: a. Wu b. We C. Wm d. can't be determined since no information is given about the business 30. A purely competitive industry would: a. hire Qc workers and pay a wage rate of W b. hire QMworkers and pay a wage rate of W c. hire Qc workers and pay a wage rate of W d. can't be determinedExplanation / Answer
Answer 27 - According to the given diagram a monopsonist will seek to hire 'Qm' workers and pay wage rate of 'Wm'. A monopsonist is a wage maker thus he determined wage rate where marginal resource cost (MRC) equal to MRP (demand curve for labor). In the given diagram monopsonist wage rate is 'Wm'.
Option A is the correct answer.
Answer 28 - The union want the wage rate in between 'Wc' and "Wm'. The union will try to increase wage to the purely competitive wage rate. Thus union will want to determine wage rate at between 'Wc'.
Option D is the correct answer.
Answer 29 - If economic condition favors the union, the final negotiated wage rate will be closer to 'Wc'. The union will want to determine wage rate equal to purely competitive wage rate.
Option B is the correct answer.
Answer 30 - A purely competitive industry will hire 'Qc' worker and pay 'Wc' wage rate. At this point supply curve for labor and demand curve for labor are equal.
Option A is the correct answer.
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