Minimum Wage and Monopsony Employment
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?
A
Employment falls as both labor demand and labor supply curves shift left in response to the wage floor.
B
There is no change in employment since the minimum wage does not affect monopsonistic hiring.
C
Employment decreases due to a larger gap between labor demand and the elevated wage floor.
D
Employment increases because the minimum wage reduces the effective MFC faced by the monopsonist, leading to more hiring.
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