In a monopsonistic input market, the firm buying the input knows that the price of the input will be determined by:
A) the quantity of output that it produces.
B) the marginal revenue product of the input.
C) the net marginal revenue of the input.
D) the quantity that it purchases.
E) the marginal cost of the input.

Question

Quizplus · Accepted Answer

In a monopsonistic input market, the firm has significant control over the market for an input and understands that the price it pays for the input is determined by the quantity of the input that it decides to purchase. This is because, as the sole or dominant buyer, its demand directly affects the market price.

In a Monopsonistic Input Market, the Firm Buying the Input