For a firm that is perfectly competitive in the output market but a monopsonist in a particular input market:
A)the price of the final output will exceed the firm's marginal cost of producing output.
B)the price of the final output will be lower than the wage rate.
C)the wage rate will be less than the average cost of labor.
D)the wage rate will be less than the marginal cost of labor.

Question

Quizplus · Accepted Answer

In a monopsony, the firm has market power in hiring labor, meaning it can influence the wage rate. As a result, the wage rate paid to workers is less than the marginal cost of labor because the firm faces an upward-sloping labor supply curve. This means that to hire additional workers, the firm must pay a higher wage not only to the additional workers but also to all the previously hired workers, making the marginal cost of labor higher than the wage rate of any individual worker.

For a Firm That Is Perfectly Competitive in the Output