A firm that was initially a monopsonist but has to buy from a competitive resource market all of a sudden will:
A)buy more amount of resources and pay a higher price for these resources.
B)buy the same amount of resources and pay a higher price for these resources.
C)buy less amount of resources and pay a lower price for these resources.
D)buy less amount of resources and pay a higher price for these resources.
E)buy more amount of resources and pay a lower price for these resources.

Question

Quizplus · Accepted Answer

When a firm transitions from being a monopsonist to buying from a competitive resource market, it will face a higher price for resources due to increased competition. Consequently, it will buy more resources because the marginal cost of additional resources is lower in a competitive market compared to a monopsonistic market.

A Firm That Was Initially a Monopsonist but Has to Buy