Answer to Question #106097 in Microeconomics for liz

Question

Explain the employment and wage rate for a monopsony in an unorganized labor market both
verbally and graphically. Explain verbally and graphically how the wage rate and employment
level change when a union is established in this market.

Answer 1

A monopsony in a unorganized labor market, there is a sole employer in the labor market.This means that the employer has the buying power over current and potential employees.Monopsony gives a potential labor failure.In a monopsony ,the supply curve is equal to the average cost of labor.The wage they pay does not neccesarily equal to the true MRPL of people employed.For a profit maximazing monopsony ,MCL=MRPL

i

a union can represent workers and seek to increase benefits to workers.If a union enters a labor market and becomes the sole supplier of labor market ,it can force the supplier that is the monpsonist to pay a wage rate that is near or at the market wage rate.At minimum wage rate (price floor)MFC=ACL(s)and a profit maximazing monopsonist would employ to a point where MFC=MRP