A monopsony in a labor market refers to a situation where there is only one buyer of labor. Let's break down the statements provided:
1. It faces a labor supply curve that is horizontal at the competitive market equilibrium wage.
- This statement is incorrect. In a monopsony, the labor supply curve is upward sloping, meaning that the monopsonist must pay a higher wage to attract more workers.
2. Its marginal factor (resource) cost is the same as the market supply curve.
- This statement is incorrect. The marginal factor cost for a monopsony is higher than the market supply curve because the monopsonist must increase wages for all workers when hiring additional labor.
3. At its optimal level of employment, it pays a wage rate higher than the competitive market wage rate.
- This statement is true. In a monopsony, the firm maximizes its profits by paying a wage lower than the value of the marginal product of labor, resulting in lower wages than in a competitive market.
4. The imposition of a minimum wage results in a larger reduction in employment than is true in a competitive market.
- This statement is true. Since a monopsony already pays lower wages, the imposition of a minimum wage can lead to a larger reduction in employment compared to a competitive market.
5. Its marginal factor (resource) cost curve lies above the labor supply curve because hiring an extra worker means paying more to existing workers.
- This statement is correct. The marginal factor cost curve for a monopsony is above the labor supply curve due to the need to increase wages for all workers, not just the additional worker.
In summary, a monopsony in a labor market pays lower wages than in a competitive market, and the imposition of a minimum wage can lead to a larger reduction in employment. The marginal factor cost for a monopsony is higher due to the need to increase wages for all workers when hiring additional labor.
