If a firm is a monopsonist, then it faces
A)a downward sloping demand curve for its product, and its marginal revenue curve will lie below its demand curve.
B)a horizontal marginal factor cost curve.
C)an upward sloping factor supply curve, and its marginal factor cost curve will lie above the factor supply curve.
D)an upward sloping factor supply curve, and its marginal factor cost curve will coincide with the factor supply curve.
E)an upward-sloping factor supply curve, and its marginal factor cost curve will lie below the factor supply curve.

Question

Quizplus · Accepted Answer

A monopsonist faces an upward sloping factor supply curve because it is the only buyer in the market. As it increases the quantity of the factor it buys, it must pay a higher price, not just for the additional units but for all units purchased. This causes the marginal factor cost curve to lie above the factor supply curve, as each additional unit of the factor costs more than the previous one, reflecting the need to pay a higher price for all units, not just the marginal one.

If a Firm Is a Monopsonist, Then It Faces