1. Why does the monopsonist pay a labor wage rate less than the labor’s marginal

Question

1. Why does the monopsonist pay a labor wage rate less than the labor’s marginal revenue product?

A. The monopsonist’s supply curve is the industry supply curve; thus, to hire more labor, it must pay a higher wage rate. Also, the MFCMFC is greater than the wage rate, and because the monopsonist hires the quantity of labor at which MRPMRP is equal to MFCMFC, it follows that the wage rate is less than MRPMRP.

B. The monopsonist pays a labor wage rate below the marginal revenue product because the revenue generated by hiring one more laborer diminishes and therefore demands a lower wage rate.

C. The monopsonist’s supply curve is the industry demand curve; thus, to hire more labor, it must pay a lower wage rate. Also, the MFCMFC is less than the wage rate, and because the monopsonist hires the quantity of labor at which MRPMRP is equal to MFCMFC, it follows that the wage rate is greater than the MRPMRP.

D. The monopsonist pays a labor wage rate that is lower than the marginal revenue product because it is the only employer around and has the ability to do so.

2. Organizing labor unions is easier in some industries than in others. What industry characteristics make unionization easier?

A. The elasticity of demand for the product labor produces is low.

B. It is difficult for unions to raise demand for the product through nonprice factors.

C. The elasticity of demand for the product labor produces is high.

D. It is easy for unions to add unskilled labor to their ranks.

3. What is the effect of labor unions on nonunion wage rates?

A. Labor unions that successfully achieve higher wage rates cause excess laborers to move to the nonunion sector. An increase in the supply of these nonunion laborers will decrease those wage rates.

B. Labor unions that successfully negotiate higher wage rates will become trendsetters and cause wage rates to increase in the nonunion market.

C. Labor unions have relatively little impact on the wage rates of nonunion laborers.

4. Complete the following sentences to describe the arguments regarding monopsony exploitation of workers.

Some argue that a monopsony firm exploits its workers if it pays them a wage (greater than/less than/equal to) their marginal revenue product. Others disagree and argue that a monopsony firm only exploits its workers if it pays them a wage (greater than/less than/ equal to) their (marginal physical product/marginal factor cost/opportunity cost of working at the firm) ; however, if this were the case, the workers would simply leave.

5. Which of the following forces may lead to a decrease in the monopsony power of a monopsonist in a labor market? Check all that apply.

A. The entry of one or more firms into the labor market

B. The existence of a labor union

C. A new law prohibiting the formation of unions and collective bargaining

D. A new law prohibiting new firms from hiring in this labor market

6. What is the “new view” of labor unions?

A. Unions cause a misallocation of labor; not all labor is employed where it is most valuable.

B. The economy will operate below its potential due to the existence of unions.

C. Unions provide a collective voice that reduces quit rates and leads to happier and more productive workers.

D. Unions drive an artificial wedge between the wages of comparable labor in the union and nonunion sectors of the economy.

E. None of the above.

Explanation / Answer

1) A is correct

Monopsonist faces labor supply which is industry's labor supply and to hire one more labor it needs to increase wage rate. Also MFC>wage and MRP = MFC, out follows wage rate is lower.

2) A is correct

When demand for the product produced by labour is low, increase in wage rate will not lead to decrease in quantity demanded by much and hence employment will not fall much either.

3) A is correct

Labor unions increase union wage by decreasing labor. This Labor goes to non union work which increases non union labor supply which suppresses wages in non union sector.

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.