Monopsony Employment and Production Costs

Question

In monopsonistic labor markets, firms face an upward-sloping labor supply curve and a marginal factor cost (MFC) curve that lies above it. How would an increase in domestic production costs due to tariffs likely affect a monopsonist’s employment level?

Accepted Answer

The monopsonist will hire fewer workers because the increased costs accentuate the upward slope of the MFC curve.

Answer

The monopsonist will hire more workers to increase output and absorb the higher cost shock.

Answer

There will be no change in employment because monopsonists do not respond to changes in input costs.

Answer

Firms will move toward competitive wage-setting, neutralizing the impact on employment.