Compared to a purely competitive firm, a monopsonist will pay
A) a higher wage rate to its workers.
B) lower wages but hire more workers than the purely competitive firm.
C) lower wage rates and hire fewer workers than the purely competitive firm.
D) lower wages, while hiring the same quantity of workers as the purely competitive firm.

Question

Quizplus · Accepted Answer

A monopsonist has market power in the labor market as the sole buyer of labor, allowing it to set a lower wage rate than a purely competitive firm. The monopsonist will also hire fewer workers, as it can use its bargaining power to negotiate a lower wage and hire only as many workers as it sees fit. Therefore, compared to a purely competitive firm, a monopsonist will pay lower wage rates and hire fewer workers.

Compared to a Purely Competitive Firm, a Monopsonist Will Pay