AP Microeconomics Flashcards: Monopsonistic Markets
Written by AP Content Team, Verified for 2026 AP Exams, Last updated: May 2026
Review key ideas with interactive flashcards. This set includes 10 cards to help you master important concepts.
What two values does a monopsonistic firm compare when deciding whether to hire an additional worker?
The firm compares the marginal revenue product generated by the additional worker to the marginal factor (resource) cost of hiring that worker.
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What two values does a monopsonistic firm compare when deciding whether to hire an additional worker?
The firm compares the marginal revenue product generated by the additional worker to the marginal factor (resource) cost of hiring that worker.
In a monopsonistic labor market, how does the marginal factor cost (MFC) relate to the wage (the supply price of labor)?
In a monopsonistic labor market, the marginal factor (resource) cost is greater than the supply price of labor when a firm hires additional workers.
A monopsonistic firm calculates that for a potential new hire, the Marginal Revenue Product is $30 and the Marginal Factor Cost is $25. Should the firm hire this worker?
Yes, the firm should hire the worker because their marginal revenue product ($30) is greater than their marginal factor cost ($25), leading to an increase in profit.
What is meant by the profit-maximizing behavior of a firm buying labor in a monopsonistic market?
This refers to the firm's strategy of hiring workers up to the point where the marginal revenue product equals the marginal factor cost to achieve the highest possible profit.
What is the profit-maximizing rule for a firm hiring labor in a monopsonistic market?
A firm in a monopsonistic market will hire additional labor as long as the marginal revenue product (MRP) is greater than the marginal factor (resource) cost (MFC).
What are the two components that make up the marginal factor cost when a monopsonist hires one more worker?
The two components are the wage of the new unit of labor and the wage increase that must be provided to all existing labor.
If a monopsonist finds that for the last worker hired, the MFC was $22 and the MRP was $19, what should the firm do to maximize profit?
To maximize profit, the firm should hire fewer workers, as the cost of the last worker (MFC) was greater than the revenue they generated (MRP).
Why is a monopsonist's marginal factor cost (MFC) greater than the wage it pays to a new worker?
The MFC is greater than the new wage because it includes not only that wage but also the cost of the wage increase that must be given to all existing labor.
What is a key characteristic of a monopsonistic market?
A monopsonistic market is characterized by having a single firm that buys a particular factor of production, such as labor.
Define Marginal Factor Cost (MFC) for a monopsonist hiring labor.
Marginal factor cost is the cost of hiring a new unit of labor, which includes the new worker's wage plus the wage increase given to all existing workers.