If a firm is a monopsonist, it will hire an input when: A)MRP does not equal w. B)MRP w. C)MRP = w. D)MRP

Question

If a firm is a monopsonist, it will hire an input when:
A)MRP does not equal w.
B)MRP > w.
C)MRP = w.
D)MRP < w.

Quizplus · Accepted Answer

As a monopsonist, the firm is the sole buyer of a particular input, which gives it market power over the input market. The firm will hire an input when its marginal revenue product (MRP) is greater than or equal to the input's price (w). This is because the firm maximizes its profits by hiring inputs up to the point where their MRP equals their price. If MRP is greater than w, the firm can increase its profits by hiring more inputs; if MRP is equal to w, the firm is indifferent between hiring more inputs or not; if MRP is less than w, the firm would lose money by hiring additional inputs. Therefore, option B is the correct answer.

If a Firm Is a Monopsonist, It Will Hire an Input