If an input market is monopsonistic, and the firm's output market is monopolistic, then in equilibrium:
A)w

Question

If an input market is monopsonistic, and the firm's output market is monopolistic, then in equilibrium:
A)w < MFC = MRP < VMP.
B)w = MFC = MRP = VMP.
C)w < MFC = MRP = VMP.
D)w = MFC = MRP < VMP.

Quizplus · Accepted Answer

In a monopsonistic input market, the firm is the sole buyer of labor, so it has market power and can pay a wage (w) lower than the marginal factor cost (MFC). In a monopolistic output market, the firm is the sole seller, so the marginal revenue product (MRP) is less than the value of the marginal product (VMP) due to the downward-sloping demand curve. Therefore, w < MFC = MRP < VMP accurately describes the equilibrium conditions.

If an Input Market Is Monopsonistic, and the Firm's Output