Suppose a firm has one variable input, labor. Why is the MRP_L curve for a competitive firm above the MRP_L curve for a monopolist? A) Without competition from other firms, monopolies are less efficient and the marginal product of labor is lower at each level of output. B) Although the marginal product of labor may be the same under both market structures, the marginal revenue of the monopoly declines with output. C) Monopolists have less incentive to invest in worker training and other methods for improving labor productivity, so the marginal product of labor is lower in the monopoly case. D) none of the above

Question

Quizplus · Accepted Answer

The MRP_L curve for a competitive firm is above the MRP_L curve for a monopolist because the marginal revenue of the monopoly declines with output due to its pricing power. This means that although the marginal product of labor may be the same under both market structures, the monopolist will produce less output and hire less labor to maximize its profits. Therefore, the MRP_L curve for a monopolist is lower than that of a competitive firm. Choice A is incorrect because monopolies may have higher efficiency in some cases due to economies of scale. Choice C is incorrect because it is not necessarily true that monopolies have less incentive to invest in worker training or productivity improvement.

Suppose a Firm Has One Variable Input, Labor