The monopsonist's marginal input cost is greater than its average input cost because:
A)the firm must increase the price it is willing to pay,to increase employment of an input.
B)the monopsonist does not have discretion over the price of the input.
C)the marginal revenue product of labor increases as the number of workers hired increases.
D)the monopsonist faces a downward-sloping input demand curve.

Question

Quizplus · Accepted Answer

As a monopsonist, the firm is the sole buyer of a particular input, such as labor. Therefore, if it wants to hire additional workers, it must offer a higher price to attract them away from other potential occupations or employers. This means that the marginal input cost, which is the additional cost of hiring an additional unit of input, will be higher than the average input cost, which is the total cost of all the inputs divided by the quantity of inputs employed. In other words, the firm must pay a higher price for each new worker it hires, which raises its marginal input cost above the average input cost.

The Monopsonist's Marginal Input Cost Is Greater Than Its Average