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Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406

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BuyFindarrow_forward

Microeconomics

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

Some persons argue that a monopsony firm exploits its workers if it pays them less than their marginal revenue products. Others disagree. They say that, as long as the firm pays the workers their opportunity costs (which must be the case, or else the workers would not stay with the firm), the workers are not being exploited. This view suggests that there are two definitions of exploitation:

  1. a. Paying workers below their marginal revenue products (even if wages equal the workers’ opportunity costs)
  2. b. Paying workers below their opportunity costs

Keeping in mind that your answer may be a subjective judgment, which definition of exploitation do you think is more descriptive of the process and why?

To determine

Explain the effect of labor unions on nonunion wage rates.

Explanation

Monopsony is a market situation, in which, there is only a single buyer. Generally, some individuals argue that monopsony firms exploit its workers. There are mainly two definitions for exploitation. They are listed below:

  • Paying the wages less than the marginal revenue products (MRP).
  • Paying the wages less than the opportunity cost.

According to the first definition, the workers are exploited by paying the wages less than the marginal revenue products. This is because a monopsonist maximizes the profit at the point where the marginal factor cost (MFC) is greater than MRP. MFC is always greater than the wages...

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