ECON 351 Midterm: Midterm 2 solutions 09 midterm 2 solns

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Part a (30 points): true/false/explain (5 points each, 2 for t/f and 3 for explain) For each statement underlined, answer whether it is true or false and explain why (with words or with a self-explaining graph when it is relevant). It is true that if the monopsonist wants to hire another worker, it has to move up its upward-sloping labour supply curve a little bit, which means that the wage paid to the entire work force increases. In comparison, the employer in a competitive labour market can recruit another employee by paying her the same wage as all of the other workers are receiving. The cost of hiring the marginal worker can be higher in monopsony. The incorrect part of the statement is that the monopsonist operates at a disadvantage due to the differing nature of labour supply. All other factors held constant, the total wage bill is lower in a monopsonistic setting.

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