Author Question: Explain why a monopsonist's marginal factor cost curve must lie above its labor supply ... (Read 140 times)

nmorano1 · **on:** Jun 30, 2018

Explain why a monopsonist's marginal factor cost curve must lie above its labor supply curve.

Question 2

Recent studies on the effectiveness of fiscal policy tend to suggest that the government spending multiplier is less than 1.0.
a. True
b. False
Indicate whether the statement is true or false

meganmoser117 · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

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.

Answer to Question 2

True