AP Microeconomics Practice Quiz: Monopsonistic Markets
Written by AP Content Team, Verified for 2026 AP Exams, Last updated: May 2026
Test your understanding with short quizzes. This quiz has 9 questions to check your progress.
Question 1 of 9
All Questions (9)
A) The marginal factor cost is equal to the supply price of labor.
B) The firm hires labor up to the point where marginal revenue product equals the wage rate.
C) The marginal factor cost is greater than the supply price of labor.
D) The firm faces a perfectly elastic labor supply curve.
Correct Answer: C
Content point 3 explicitly states that 'When a typical firm hires additional workers in a monopsonistic labor market, the marginal factor (resource) cost is greater than the supply price of labor.' This is a defining feature of monopsony.
A) The marginal revenue product is greater than the marginal factor cost.
B) The marginal factor cost is greater than the marginal revenue product.
C) The marginal revenue product is equal to the supply price of labor.
D) The marginal factor cost is decreasing.
Correct Answer: A
Content point 2 states that 'a typical firm hires additional labor as long as the marginal revenue product is greater than the marginal factor (resource) cost.' This is the rule for deciding whether to hire one more worker.
A) The wage paid only to the newest worker hired.
B) The average wage paid to all workers.
C) The total cost of labor divided by the number of workers.
D) The wage for a new worker plus the wage increase for all existing workers.
Correct Answer: D
Content point 2 defines the marginal factor cost as 'the wage of a new unit of labor plus the wage increase given to all existing labor.' This is because to hire a new worker, the monopsonist must raise the wage for everyone.
A) Because the firm must also account for the marginal revenue product of the new worker.
B) Because the firm must increase the wage for all previously hired workers as well.
C) Because new workers in a monopsony are always less productive than existing workers.
D) Because government regulations require a premium to be paid for new hires.
Correct Answer: B
The provided content explains that the marginal factor cost includes 'the wage of a new unit of labor plus the wage increase given to all existing labor.' This second component—the cost of raising all existing wages—is what makes the MFC greater than the new worker's wage (the supply price).
A) The supply price of labor.
B) The marginal factor cost (MFC).
C) The average wage.
D) Zero.
Correct Answer: B
The profit-maximizing behavior, as described in content point 2, is to hire as long as MRP > MFC. The optimal quantity is therefore found where MRP = MFC. The firm will stop hiring when the cost of the next worker (MFC) equals the revenue that worker generates (MRP).
A) Hire more labor.
B) Hire less labor.
C) Maintain the current level of employment.
D) Decrease the wage rate for all workers.
Correct Answer: A
According to content point 2, a firm should hire additional labor as long as the marginal revenue product (MRP) is greater than the marginal factor cost (MFC). Since MRP ($25) is greater than MFC ($20), the firm can increase its profit by hiring more workers.
A) greater than the marginal factor cost.
B) equal to the marginal factor cost.
C) less than the marginal factor cost.
D) equal to the marginal revenue product.
Correct Answer: C
Content point 3 states that 'the marginal factor (resource) cost is greater than the supply price of labor.' Therefore, the supply price of labor must be less than the marginal factor cost.
A) The wage paid to workers is equal to their marginal revenue product.
B) The wage paid to workers is greater than their marginal revenue product.
C) The marginal revenue product is equal to the marginal factor cost, and both are greater than the wage.
D) The marginal factor cost is equal to the wage, and both are less than the marginal revenue product.
Correct Answer: C
The firm maximizes profit where MRP = MFC (from content point 2). We also know that for a monopsonist, MFC is greater than the supply price of labor, which is the wage (from content point 3). Therefore, at the profit-maximizing quantity, MRP = MFC > Wage.
A) marginal revenue product.
B) new worker's wage.
C) marginal factor cost.
D) average of the old and new wage.
Correct Answer: C
The marginal factor cost (MFC) is the change in total cost from hiring one more unit of a resource. The content describes this as 'the wage of a new unit of labor plus the wage increase given to all existing labor,' which is the total increase in labor cost from that one additional hire.