A firm that is a monopsony in its market for a factor of production:

Question

Quizplus · Accepted Answer

A monopsony is a market situation in which there is only one buyer for a particular product, in this case, a factor of production. Therefore, the firm constitutes the entire market for that factor, making choice B the correct one. A monopsony, however, does not face a horizontal supply curve of labor (choice A), as it has some influence on the wage it pays. It is also not a factor price taker (choice C), as it has some market power in determining the wage rate it pays. Finally, a monopsony can change the quantity of the factor it hires (choice D) by changing the wage rate it offers.

A Firm That Is a Monopsony in Its Market for a Factor