If minimum wages in a monopsony labor market are set above the firm's MFC at its initial hiring level, the effect would be to
A)Increase the hiring of unskilled workers
B)Increase productivity
C)Reduce factor costs
D)Reduce employment

Question

Quizplus · Accepted Answer

In a monopsony labor market, there is only one buyer of labor, and as a result, the firm has wage-setting power. If a minimum wage is set above the firm's MFC at its initial hiring level, the firm would face increased labor costs and would reduce employment to maintain profits. Therefore, the effect of such a policy would be to reduce employment rather than increasing it. Options A, B, and C are incorrect because the policy would not increase the hiring of unskilled workers, productivity, or reduce factor costs.

If Minimum Wages in a Monopsony Labor Market Are Set