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Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406

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Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406
Textbook Problem

Explain why the monopsonist pays a wage rate less than labor’s marginal revenue product.

To determine

The reason for a monopsonist to pay a wage rate less than labor’s marginal revenue product (MRP).

Explanation

Figure-1 indicates the market for a monopsonist as shown below:

In Figure-1, the vertical axis measures the wage, marginal revenue product (MRP), and marginal factor cost (MFC), and the horizontal axis measures the quantity of labor. The supply curve of the monopsonist is the industry’s supply curve. Therefore, when a monopsonist hires an additional labor, it causes to increase the wage rate...

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