What is the profit maximization condition when firm has both

What is the profit maximization condition when firm has both monopoly power and monopsony power?

Solution

Monopoly Power : Price setter in product market . Profit maximization occurs at : MR = MC . That is marginal revenue equates with marginal cost of production . Price is determined by point on the demand curve that is corresponding to the profit maximizaing quantity .

Monopsony power : Price setter in factro market . Now in this market the firm will maximize profits by equating Marginal Revenue Product ( MRP ) with Marginal Factor Cost (MFC) . Here factor price is determined by point on the supply curve that corresponds to the quantity where MRP = MFC .