Why does a monopsony increase employment when faced with an ...

[Kikoku]

Why does a monopsony increase employment when faced with an effective minimum wage law?
 
  What will be an ideal response?

Question 2

In the figure above, if the government provides a subsidy to colleges of 6,000 per student per year, what is the tuition?
 
  A) 10,000 per year
  B) 12,000 per year
  C) 8,000 per year
  D) 6,000 per year

[guyanai]

Answer to Question 1

A monopsony hires the quantity of labor so that the value of marginal product of labor (VMP) is equal to the marginal cost of labor (MCL). This condition means that initially the VMP is above the wage (W). When a minimum wage is imposed, the marginal cost of labor decreases because it becomes equal to the minimum wage. Thus, the firm will hire more workers up to the point at which VMP = W.

Answer to Question 2

C

[Kikoku]

Thanks for the timely response, appreciate it

[kswal303]

TYSM