Which of the following is always true for a firm with monopsony power?

• A. The firm faces an upward-sloping supply curve for the input it purchases.
• B. The firm can set the market price for its output without regard to competitors.
• C. The firm is the sole seller of a product in the market.
• D. The firm always pays the same price for each unit of input, regardless of quantity purchased.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of monopsony power. A firm with monopsony power is a buyer that has significant control over the market for an input, meaning it is the dominant or sole purchaser of that input.
2. Step 2: Recall that in a monopsony, the firm faces an upward-sloping supply curve for the input it purchases. This means that to buy more units of the input, the firm must pay a higher price per unit.
3. Step 3: Recognize that the firm with monopsony power is not necessarily the sole seller of the product it produces, nor does it have the ability to set the market price for its output without regard to competitors. These characteristics describe monopoly power on the output side, not monopsony power on the input side.
4. Step 4: Understand that a monopsonist does not pay the same price for each unit of input regardless of quantity. Instead, because the supply curve is upward sloping, the price increases as the quantity purchased increases.
5. Step 5: Conclude that the defining and always true characteristic of a firm with monopsony power is that it faces an upward-sloping supply curve for the input it purchases.