Senator Approxmire Opposes a Proposal Requiring That the Monopsonist Pay

question 28

Multiple Choice

Senator Approxmire opposes a proposal requiring that the monopsonist pay a minimum wage of at least W_min,stating: "Even if the labor market is monopsonistic,economic theory unambiguously demonstrates that imposing a minimum wage causes employment to fall." Senator Approxmire is:

• A) correct because the law of demand states that as the wage rises,the firm demands less labor.
• B) incorrect because the monopsonist would offer a wage of W_A,which is higher than W_min,and maintain its employment at L₁.
• C) incorrect because the monopsonist's effective MRC curve becomes ABCD,which means that it would choose to hire more workers,from L₁ to L₂,following the imposition of the minimum wage.
• D) correct because the graph indicates that at the wage of W_min,the monopsonist would not make a profit from hiring labor and so would not hire any at all.

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