Given: MRP = marginal revenue product; MRC = marginal resource cost; W = wage rate. A firm that sells its product in a purely competitive market, but is a monopsonist in its labor market, would hire the quantity of labor where
A) MRP = MRC = W.
B) MRP MRC = W.
C) MRP MRC W.
D) MRP = MRC W.

Question

Given: MRP = marginal revenue product; MRC = marginal resource cost; W = wage rate. A firm that sells its product in a purely competitive market, but is a monopsonist in its labor market, would hire the quantity of labor where
A) MRP = MRC = W.
B) MRP > MRC = W.
C) MRP > MRC > W.
D) MRP = MRC > W.

Quizplus · Accepted Answer

In a monopsony, the firm has market power in hiring labor, so it hires where MRP = MRC, but since it can pay a wage less than the MRC, W is less than MRC.

Given: MRP = Marginal Revenue Product; MRC = Marginal Resource