Compared to the allocatively efficient amount,a monopsonist tends to hire:
A)too few workers because the value of marginal product exceeds marginal revenue product
B)too few workers because marginal wage cost exceeds the wage rate
C)too many workers because the value of marginal product exceeds marginal revenue product
D)too many workers because marginal wage cost exceeds the wage rate

Question

Quizplus · Accepted Answer

A monopsonist has market power in the labor market, meaning they can hire workers at a lower wage than in a competitive labor market. As a result, the marginal wage cost for a monopsonist is higher than the wage rate, which leads them to hire fewer workers than the efficient amount. Therefore, the correct answer is choice B.

Compared to the Allocatively Efficient Amount,a Monopsonist Tends to Hire