By restricting price to be below the monopolist's profit-maximizing price,the overnment can change the hap e of the firm's marginal revenue, MR,curve When a price ceiling is imposed,MR is equal to the price ceiling for all quantities lower than the quantity demanded at the price ceiling.If the government wants to maximize output,it should set a price equal to marginal cost,or in other words set price at the point where the demand curve and the marginal oost curve intersect. Prices bebw this level induce the firm to decrease production assuming the marginal st curve is upward sloping.The regulator's problem is to determine the shape of the monopolist's marginal cost curve.This task is difficult given the monopolist's incentive to hide or distort this information. 9.How should a monopsonist decide how much ofa product to buy?Willit buv more or less than a competitive buver?Explain brielly. The marginal expenditure is the change in the total expenditure as the purchased quantity changes.For a with the marginal expenditure is equal to the average expenditure (price). For a monopsonist,the marginal expenditure curve lies above the average expenditure curve because the decision to buy an extra unit raises the price that must be paid for all units.including the last unit.All firms shoul buy inputs so that the marginal value of the last unit is equal to the marginal expenditur re on that unit.This is true for both the mpetitive buyer and th onist However,because the monopsonist's marginal expenditure curve lies above the average expenditure curve and because the marginal value curve is downward sloping.the monopsonist buys less than a firm would buy in a competitive market. 10.What is meant by the term "monopsony power'?Why might a firm have monopsony power even ifit is not the only buyer in the market? refers to the buyer's ability to affect the price of a good.This power ena the buye er to pu chas ethe goodfor a lwer price,as competitive factor market Any buyer facing an upward-sloping factor supply curve has some monopsony power.In a competitive market the seller faces a perfectly-elastic market demand curve and the buyer faces a perfectly-elastic market supply curve.Thus any characteristic of the market (e.g.when there are a mall number of buyers or if buyers engage in ollusive behavior)that leads toa less-than-perfectly-elastic supply curve gives the buyer some monopsony power. 11.What are some sources of monopsony power?What determines the amount of monopsony power an individual firm is likely to have? The individual firm's monopsony power depends on the characteristics of the "buying-side"of the market.There are three characteristics that enhance monopsony power:(1)the elasticity ofmarket supply.(2)the number of buvers and (3)how the buyers interact.First,if market supply is very inelastic,then the buyer will enjoy more monopsony power.When supply is very elas c marginal expenditure and average expenditure do not differ by much,so price will be closer to the competitive price.Second,the fewer the number of buyers,the greater theBy restricting price to be below the monopolist’s profit-maximizing price, the government can change the shape of the firm’s marginal revenue, MR, curve. When a price ceiling is imposed, MR is equal to the price ceiling for all quantities lower than the quantity demanded at the price ceiling. If the government wants to maximize output, it should set a price equal to marginal cost, or in other words set price at the point where the demand curve and the marginal cost curve intersect. Prices below this level induce the firm to decrease production, assuming the marginal cost curve is upward sloping. The regulator’s problem is to determine the shape of the monopolist’s marginal cost curve. This task is difficult given the monopolist’s incentive to hide or distort this information. 9. How should a monopsonist decide how much of a product to buy? Will it buy more or less than a competitive buyer? Explain briefly. The marginal expenditure is the change in the total expenditure as the purchased quantity changes. For a firm competing with many firms for inputs, the marginal expenditure is equal to the average expenditure (price). For a monopsonist, the marginal expenditure curve lies above the average expenditure curve because the decision to buy an extra unit raises the price that must be paid for all units, including the last unit. All firms should buy inputs so that the marginal value of the last unit is equal to the marginal expenditure on that unit. This is true for both the competitive buyer and the monopsonist. However, because the monopsonist’s marginal expenditure curve lies above the average expenditure curve and because the marginal value curve is downward sloping, the monopsonist buys less than a firm would buy in a competitive market. 10. What is meant by the term “monopsony power”? Why might a firm have monopsony power even if it is not the only buyer in the market? Monopsony power refers to the buyer’s ability to affect the price of a good. This power enables the buyer to purchase the good for a lower price, as compared to a competitive factor market. Any buyer facing an upward-sloping factor supply curve has some monopsony power. In a competitive market, the seller faces a perfectly-elastic market demand curve and the buyer faces a perfectly-elastic market supply curve. Thus, any characteristic of the market (e.g., when there are a small number of buyers or if buyers engage in collusive behavior) that leads to a less-than-perfectly-elastic supply curve gives the buyer some monopsony power. 11. What are some sources of monopsony power? What determines the amount of monopsony power an individual firm is likely to have? The individual firm’s monopsony power depends on the characteristics of the “buying-side” of the market. There are three characteristics that enhance monopsony power: (1) the elasticity of market supply, (2) the number of buyers, and (3) how the buyers interact. First, if market supply is very inelastic, then the buyer will enjoy more monopsony power. When supply is very elastic, marginal expenditure and average expenditure do not differ by much, so price will be closer to the competitive price. Second, the fewer the number of buyers, the greater the