This paper is an attempt to explain the behavior of a producer who is faced with a fixed wage rate due to either the presence of a union or government minimum wage legislation. Our analysis shows that a monopsonist facing an imperfect market for labor under a minimum wage legislation has built in a profit maximization incentive not to increase production to a point, even though the demand for the product increases. This implies that the increase in price of the product does not give any incentive to increase production, which adds fuel to the problem of inflation. The magnitude of the increase in price is dependent upon the value of the elasticity of the supply of labor and the elasticity of the product. These results also apply to the case of bilateral monopoly.