A profit maximizing monopsonist chooses aggregate quantity of input so that:
A)price equals marginal factor cost.
B)marginal factor cost equals aggregate output price.
C)marginal revenue product equals aggregate marginal factor cost.
D)output price equals marginal revenue.

Question

Quizplus · Accepted Answer

A profit maximizing monopsonist chooses the quantity of input where the marginal revenue product (MRP) equals the marginal factor cost (MFC). This is because the MRP is the additional revenue generated by using one more unit of input, while the MFC is the additional cost incurred by using one more unit of input. The monopsonist will continue to use more inputs as long as the MRP is higher than the MFC, and will stop using more inputs when the MRP equals the MFC, because any additional input will generate revenue equal to its cost, resulting in zero profit. Therefore, choice C is the correct answer.

A Profit Maximizing Monopsonist Chooses Aggregate Quantity of Input So