At the profit-maximizing level of employment, the monopsonist

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At the profit-maximizing level of employment, the monopsonist pays a wage less than MRP. This is because the monopsonist has a high degree of control over wage setting due to its market power in the labor market. As the only buyer of labor, the monopsonist can hire workers at a lower wage than what would prevail in a competitive labor market, reducing its labor costs and increasing profits. However, if the monopsonist pays a wage lower than the workers' reservation wage, some workers may choose not to work and the monopsonist may face a labor shortage. Therefore, the monopsonist will set the wage at the level where marginal cost of hiring an additional worker (MFC) is equal to the marginal revenue product of labor (MRP), which is lower than the MRP in a competitive labor market.

At the Profit-Maximizing Level of Employment, the Monopsonist