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AP Microeconomics 5.4: Monopsonistic Markets

Analyze a monopsonist’s hiring choice by comparing marginal revenue product with marginal factor cost and reading the wage from labor supply.

Syllabus
Effective Fall 2025
Course
AP Microeconomics

Covered syllabus points

PRD-4.D—a. Define (using graphs as appropriate) the characteristics of monopsonistic markets. b. Explain (using graphs where appropriate)…

5.4 Monopsonistic Markets question 1

[Maximum number: 4]

Quartz Excavations is a profit-maximizing firm and the only employer of miners of quartz in a

small town. The graph provided shows the labor market for miners.

Figure for Question 5.4 Monopsonistic Markets question 1 — AP Microeconomics

Question (a)

(a)

Identify Quartz Excavations' profit-maximizing number of miners to hire.

[ 1 ]

Question (b)

(b)

Will Quartz Excavations pay its profit-maximizing number of miners a wage rate that is

equal to $15, greater than $15, or less than $15? Explain using numbers.

[ 1 ]

Question (c)

(c)

Suppose the government sets a minimum wage (a price floor on wages) at $25\$ 25. Calculate the

total wage bill for Quartz Excavations at the resulting profit-maximizing number of miners.

Show your work.

[ 1 ]

Question (d)

(d)

Suppose that instead of a minimum wage, there is now an increase in the demand for quartz.

[ 1 ]

Question (i)

(i)

After the demand for quartz increases, Quartz Excavations hires the new

profit-maximizing number of miners. Will the marginal factor cost of the last

miner hired be greater than, less than, or equal to the marginal factor cost of the

last miner hired before the demand for quartz increased?

[ 1 ]
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