Relative to a competitive labor market,monopsony
A) is also efficient.
B) creates a deadweight loss because it pays an excessive wage.
C) creates a deadweight loss because the wage is below the marginal revenue product of labor.
D) creates a deadweight loss because the wage is above the marginal revenue product of labor.

Question

Quizplus · Accepted Answer

Monopsony creates a deadweight loss because the wage paid by the employer is below the marginal revenue product (MRP) of labor. In a competitive labor market, MRP is equal to the wage rate, but in a monopsony, the employer has some bargaining power due to a lack of alternative job options for workers, enabling them to pay a wage rate lower than what would be paid in perfect competition. This results in fewer workers being employed and lower output, causing a deadweight loss.

Relative to a Competitive Labor Market,monopsony