“Other things being equal, the monopolist hires fewer workers than would be hired than a perfectly competitive industry.” Do you agree or disagree? Why?

What will be an ideal response?

ANSWER:

Agree. For competitive firms, marginal revenue product equals marginal physical product multiplied by product price. For a monopoly, marginal revenue product equals marginal physical product multiplied by marginal revenue. Since marginal revenue falls faster than price, MRP of a monopolist falls faster than the price in a competitive industry. Marginal factor cost is the same for both, so the equilibrium quantity of labor is less for monopoly than for perfect competition.