Monopsony Labor Markets Completion Monopsony When one firm

Monopsony Labor Markets Completion

Monopsony • When one firm is the sole purchaser of a resource in the input market (factor market) Definition: • Therefore, a monopsony can not hire more workers without increasing wage rate – They are not “wage takers” • Example: only buyer of labor in a small town

Competitive Firm vs. Monopsony • A competitive firm in the input market – Hire labor where MRP = MFC – They are “wage takers” • A Monopsony (input market) – Can not hire more workers without increasing wage rate – MFCM is above supply curve of labor (S)

Monopsony MFCM To hire more workers wages must rise for all workers S = MFCc Wage --------- WM ------- WC ----------Ec -------- EM DL = MRPL LM LC Qty-Labor Final Outcome: • Hire less than competitive input market LM < LC • Monopsony firms pay less: WM < WC

Monopsony Summary • Monopsony must raise wages to hire more workers – This leads to all workers getting a raise • Hire less workers at a lower wage than competitive input markets

Worksheet #4 • Monopsony

PRODUCT MARKET FACTOR MARKET (OUTPUT) What: (INPUT) Produce Goods/Services Equilibrium: MR = MC What: Hire factors of production Equilibrium: MRP = MFC Competitive Market S (MC) D (MR) Market Power Market S (MC) MR D Product Market: Factor Market: Market Power Firms: • Produce less Qty Market Power Firms: • Hire less Qty • Charge higher Price • Pay same wage