Question

Assume a monopsonistic employer is paying a wage rate of Wm and hiring Qm workers, as indicated in the figure below.

Now suppose an industrial union is formed that forces the employer to accept a wage rate of Wc. A higher wage rate will be accompanied by an increase in the number of workers hired because ________.

Answer 1

Step-by-step explanation:

The union wage rate Wc becomes the firm’s MRC, which would be shown as a horizontal line to the left of the labor supply curve. Each unit of labor now adds only its own wage rate to the firm’s costs. The firm will employ Qc workers, the quantity of labor where MRP = MRC (= Wc); Qc is greater than the Qm workers it would employ if there were no union and if the employer did not have any monopsonistic power, i.e., more workers are willing to offer their labor services when the wage is Wc than Wm.