Minimum Wage and Monopsony Employment

Question

In a monopsonistic labor market, the firm’s marginal factor cost (MFC) lies above the labor supply curve. If a binding minimum wage is imposed at a level below the competitive equilibrium wage but above the monopsony wage, what is the expected outcome?

Accepted Answer

Employment increases because the minimum wage reduces the effective MFC faced by the monopsonist, leading to more hiring.

Answer

Employment falls as both labor demand and labor supply curves shift left in response to the wage floor.

Answer

Employment decreases due to a larger gap between labor demand and the elevated wage floor.

Answer

There is no change in employment since the minimum wage does not affect monopsonistic hiring.