Monopsony in an input market is a source of inefficiency in the allocation of resources because:
A)monopsony always entails discrimination.
B)the monopsonist hires too little of the input.
C)MR is necessarily less than price in the output market.
D)in equilibrium MRP

Question

Monopsony in an input market is a source of inefficiency in the allocation of resources because:
A)monopsony always entails discrimination.
B)the monopsonist hires too little of the input.
C)MR is necessarily less than price in the output market.
D)in equilibrium MRP < w.

Quizplus · Accepted Answer

Monopsony in an input market can lead to inefficiency because the monopsonist has market power and can hire less of the input than would be socially optimal. This leads to a lower equilibrium quantity and higher equilibrium price than would exist in a perfectly competitive market. Options A, C, and D are not necessarily true in all cases of monopsony.

Monopsony in an Input Market Is a Source of Inefficiency