Question

Why does a monopsonistic firm pay the last unit of labor that it employs a wage that is less than that unit's marginal revenue product?

Short answer

A monopsonistic firm pays the last unit of labor it employs a wage that's but that unit's marginal revenue product.

Step-by-step solution

Introduction

Monopsonies takemany alternative formsand should occuraltogether forms of markets.as an example, some economists have accused Ernest and Julio Gallo–a conglomerate of wineries and wine producers–of being a monopsony.the corporate is so large and hasmost buying power over grape growers that grape wholesalersdon't have any choice but to lower prices andcomply with the company's terms.

Given Information

In monopsonistic firm, marginal factor cost curve lies abovethe availability curve of labor it faces.

Explanation

This suggests that wage rate it pays to the last unit of labor is a smaller amount than the marginal factor cost of that unit of labor. It must be noted that monopsonistic firm hires labor up to the purpose where its marginal factor cost curve intersects its marginal revenue product curve. In other words, just in case of monopsonistic firm each additional unit of labor's MFC equals the MRP of such unit and thus wage rate being but MFC becomes but MRP furthermore.