In monopoly, output price is greater than the marginal cost of the output; in monopsony, the price of a factor is less than the marginal revenue product of the factor.

Question

Quizplus · Accepted Answer

This statement is true. In monopoly, the firm has market power and can choose the price of its output, which is typically set above the marginal cost in order to maximize profits. In monopsony, the firm has market power in the factor market and can choose the wage or price it pays for a factor, which is typically set below the marginal revenue product of the factor in order to maximize profits.

In Monopoly, Output Price Is Greater Than the Marginal Cost