Explain why a monopsonist's marginal factor cost curve must lie above its labor supply curve
The labor supply curve shows the wage rate to be paid in order to hire each additional unit of labor. For a monopsonist, when it offers higher wages to attract additional units of labor, it must also pay the higher wage to all other workers. Therefore, the change in total labor cost rises even faster than the average wage rate, and hence the MFC curve will lie above the labor supply curve.
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Economists refer to the simple relationship between consumption and income as
a. autonomous consumption b. the marginal propensity to consume c. the absolute income hypothesis d. disposable income e. the consumption function
According to the rational expectations theory, expansionary monetary policy will
a. reduce inflation. b. lead to inflation and the higher rate of inflation will be quickly anticipated. c. reduce unemployment because people will generally underestimate the inflationary side effects of the monetary expansion. d. accelerate inflation in the short run, but in the long run the primary effect will be an increase in employment.