Monopsony Employment and Production Costs
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?
A
The monopsonist will hire fewer workers because the increased costs accentuate the upward slope of the MFC curve.
B
There will be no change in employment because monopsonists do not respond to changes in input costs.
C
The monopsonist will hire more workers to increase output and absorb the higher cost shock.
D
Firms will move toward competitive wage-setting, neutralizing the impact on employment.
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