Monopsony in an Input Market Is a Source of Inefficiency

question 58

Multiple Choice

Monopsony in an input market is a source of inefficiency in the allocation of resources because:

• A)monopsony always entails discrimination.
• B)the monopsonist hires too little of the input.
• C)MR is necessarily less than price in the output market.
• D)in equilibrium MRP < w.

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Definitions:

Perfectly Competitive

Describes a market structure where many firms sell identical products, there are no barriers to entry or exit, and all firms are price takers.

Excess Capacity

A situation where a firm is producing at a lower scale of output than it has been designed for, leading to inefficiencies.

Average Total Costs

The total costs of production divided by the number of units produced, representing the cost per unit.

Marginal Revenue Curve

A graphical representation showing how marginal revenue varies as output varies.