In a monopsonistic input market the marginal cost of another unit of an input is greater than its price because it is assumed that:
A) the firm pays a constant price to get an additional unit of input per time period.
B) the firm has to pay a higher price to get an additional unit of input per time period.
C) the firm pays a lower price for each additional unit of input per time period.
D) the firm has to pay a higher price to get a lower number of units of input per time period.
E) the firm has to pay a constant price to get a constant number of units of input per time period.

Question

Quizplus · Accepted Answer

In a monopsonistic input market, the firm has market power as the sole buyer of an input. Therefore, to purchase additional units of the input, it must increase the price it is willing to pay, causing the marginal cost of the input to be greater than its price. Hence, choice B is the best answer.

In a Monopsonistic Input Market the Marginal Cost of Another