If the marginal expenditure for a monopsony is $75 and it is paying a wage of $50, the elasticity of labor supply is:
A) 0.5.
B) 2.
C) 0.
D) 1.

Question

Quizplus · Accepted Answer

The elasticity of labor supply to the monopsonist can be calculated using the formula: Elasticity = (Wage / Marginal Expenditure) - 1. Substituting the given values, we get Elasticity = (50 / 75) - 1 = 2/3 - 1 = -1/3. However, the correct calculation should reflect the relationship between wage, marginal expenditure, and elasticity correctly. The correct approach involves understanding that the elasticity of labor supply is related to how the wage and the marginal expenditure on labor relate to each other, but the provided calculation and choices seem to misinterpret the standard economic formulas and concepts. The correct interpretation of elasticity in this context should consider how sensitive the supply of labor is to changes in the wage rate, which is not directly calculable with only the provided information and the formula used here. Therefore, the response mistakenly attempts to apply a formula that doesn't accurately reflect the concept of elasticity of labor supply as it's understood in economic theory.

If the Marginal Expenditure for a Monopsony Is $75 and It