Use the following to answer question(s): Monopsony

-(Exhibit: Monopsony) Given perfect competition in the factor market, the wage would be:

Question

Use the following to answer question(s): Monopsony
 
-(Exhibit: Monopsony) Given perfect competition in the factor market, the wage would be:

Quizplus · Accepted Answer

In a perfectly competitive factor market, the wage rate would be determined where the marginal revenue product (MRP) of labor equals the marginal factor cost (MFC), which occurs at W₁ in the exhibit. In a monopsony, the firm has some market power in the factor market and can lower the wage rate below the competitive level to increase its profits. Therefore, the wage rate paid by the monopsony is lower than the competitive wage rate (W₁), which is why the exhibit shows the monopsony wage rate as W₂.

Use the Following to Answer Question(s): Monopsony