The monopoly sets its product _______ based on the _______ curve it faces, and monopsony sets its factor _______ based on the _______ curve it faces.

Question

Quizplus · Accepted Answer

Monopoly sets its product price based on the demand curve it faces, which is the maximum price consumers are willing to pay for that product. Therefore, option A is incorrect as it says "monopoly sets its product price based on the price curve", which doesn't make sense.

On the other hand, monopsony is the only buyer of a factor of production and therefore has significant market power over the price of that factor. As a result, it sets its factor price based on the supply curve it faces, which is the minimum price suppliers are willing to accept for that factor. Therefore, option B is correct.

Option C is incorrect because it implies that both monopoly and monopsony set their prices/profits based on the profit curve, which is not the case. Finally, option D is incorrect because it says "monopsony sets its factor price based on the demand curve", which is incorrect; it should be based on the supply curve.

The Monopoly Sets Its Product _______ Based on the _______

The Monopoly Sets Its Product _ Based on the _