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Monopsony quiz

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  • What is a monopsony?
    A monopsony is a market with a single buyer, often seen in labor markets where one firm hires all workers.
  • How does a monopsony differ from a monopoly?
    A monopoly is a single seller in a market, while a monopsony is a single buyer.
  • In what type of market is a monopsony most commonly found?
    Monopsonies are most commonly found in labor markets where one firm is the main employer.
  • How does a monopsony determine the number of workers to hire?
    A monopsony hires workers where the marginal cost of labor equals the marginal revenue product of labor.
  • Why is the marginal cost of labor higher than the wage in a monopsony?
    Because hiring an additional worker requires raising the wage for all employees, not just the new hire.
  • What happens to wages and employment in a monopsony compared to a competitive market?
    Wages and employment are lower in a monopsony than in a competitive market.
  • How does the supply curve of labor relate to the wage paid in a monopsony?
    The wage paid is where the supply curve touches the hiring point, which is lower than the competitive equilibrium wage.
  • What effect does a monopsony have on the quantity of labor hired?
    A monopsony hires fewer workers than would be hired in a competitive market.
  • How does a minimum wage law affect a monopsony labor market?
    A minimum wage law increases both the wage and the quantity of labor hired, moving the market toward competitive equilibrium.
  • What happens to the marginal cost of labor when a minimum wage is implemented in a monopsony?
    The marginal cost of labor becomes equal to the minimum wage up to the equilibrium quantity.
  • Why does a minimum wage law help workers in a monopsony?
    It prevents the monopsony from paying below-equilibrium wages and increases employment to competitive levels.
  • What is the derived demand for labor in a monopsony?
    The firm's demand for labor is based on the marginal revenue product, or what workers can produce for the firm.
  • How does the marginal cost curve in a monopsony compare to the supply curve?
    The marginal cost curve is steeper than the supply curve because hiring more workers raises wages for all employees.
  • What is the main similarity between a monopoly and a monopsony?
    Both maximize profits by equating marginal cost and marginal revenue, but from opposite sides of the market.
  • What is the outcome if a minimum wage is set at the competitive equilibrium wage in a monopsony?
    The labor market returns to competitive equilibrium, with higher wages and more workers hired.