Chapter 71, Problem 7MCQ

To determine

The marginal factor cost of labor when a minimum wage is imposed on a monopsony

Answer to Problem 7MCQ

From the available options, the correct option is horizontal until it meets the supply curve.

Explanation of Solution

When a minimum wage is imposed on a monopsony market situation in which there is only a single buyer exists, the marginal factor cost would become horizontal at the minimum wage rate until it meets the supply curve. This happens because the marginal factor cost of labor is higher than the wage rate in a monopsony market. Therefore, the marginal factor cost of labor cannot become vertical at the current quantity of labor and steeper or downward sloping.

Here, the correct option is b.

Economics Concept Introduction

Introduction: Monopsony is the structure or a situation of the market where only one buyer exists.

Supply curve represents the graphical information about how supply is sensitive to demand or price.