If a firm buys some labor in a competitive market and some labor as a monopsonist,the firm is most likely to
A) pay the same wage to both types of labor.
B) pay a lower wage to the labor purchased in the competitive market.
C) pay a higher wage to the labor purchased in the competitive market.
D) not exercise any of its monopsony power.

Question

Quizplus · Accepted Answer

In a competitive market, firms are price takers, including for wages, meaning they pay the market wage. As a monopsonist (a single buyer in the market), the firm has power to set wages and typically pays a lower wage than in competitive markets. Therefore, the firm is likely to pay a higher wage to the labor purchased in the competitive market compared to what it pays in a market where it has monopsony power.

If a Firm Buys Some Labor in a Competitive Market