Given the same demand and cost functions,which of the following is true of a monopsony input market as compared to a competitive input market?
A)The employment of inputs is lower in a monopsony market
B)The employment of inputs is the same in both markets.
C)The price paid for inputs is higher in a monopsony market.
D)The price paid for inputs is the same in both markets.

Question

Quizplus · Accepted Answer

In a monopsony input market, there is only one buyer (the monopsonist) for the inputs, which gives the monopsonist market power to affect the price of inputs. As a result, the monopsonist can lower the price it pays for inputs below the competitive market price. However, the lower price does not mean that the monopsonist will use more inputs. Instead, it may use fewer inputs to reduce costs and increase its profits. Therefore, the employment of inputs is likely to be lower in a monopsony market compared to a competitive market with the same demand and cost functions.

Given the Same Demand and Cost Functions,which of the Following