Monopsonists hire the amount of labor that will equate the marginal factor cost with the derived demand curve for labor.

Question

Quizplus · Accepted Answer

Monopsonists operate in a labor market where there is a single buyer, which gives them the power to influence the market wage rate. To determine the optimal amount of labor to hire, a monopsonist will hire the amount of labor where the marginal factor cost (MFC) equals the marginal revenue product (MRP) of labor, which is represented by the derived demand curve for labor. This is because the MFC represents the additional cost to the firm of hiring one more unit of labor, while the MRP represents the additional revenue generated by hiring one more unit of labor. When MFC and MRP are equal, the monopsonist is producing at the point where it maximizes its profits.

Monopsonists Hire the Amount of Labor That Will Equate the Marginal