In a monopsonistic input market the marginal cost of another unit of an input is equal to its price because it is assumed that as the firm has to pay a higher price for one more unit of input, it must pay the same price for all units of input.

Question

Quizplus · Accepted Answer

In a monopsonistic input market, the firm has market power as the sole buyer of a specific input. Therefore, as the firm purchases additional units of the input, it raises the price of the input for all units it buys, not just the additional ones. This means that the marginal cost of another unit of input is greater than its price.

In a Monopsonistic Input Market the Marginal Cost of Another