Answer to Question #83595 in Economics of Enterprise for Shaendra

Question

Assume a monopsonistic employer is paying a wage rate of Wm and hiring Qm workers. Now suppose an industrial union is formed that forces the employer to accept a wage rate of Wc. Explain verbally and graphically why in this instance the higher wage rate will be accompanied by an increase in the number of workers hired.

Answer 1

Since the employer is monopsonic, it is probably the only employer on the market. As a result, it will be forced by a trade union to hire more employees, even with a higher wage. Also, supply of labor force is going to grow, because of the growing price for a product, which is wage.