Monopsonistic Markets - AP Microeconomics

It can increase employment up to the competitive level. Eliminates monopsony power partially, making hiring less costly.

Wage below $MRP_L$ at the chosen employment level. Workers paid less than their marginal contribution to revenue.

$MRP_L$ and $MFC$ intersect at the chosen $L$. Profit-maximizing condition where marginal benefit equals marginal cost.

The loss from $L_M < L_C$ where $MRP_L > S_L$ for missed hires. Triangle between $MRP_L$ and $S_L$ curves from $L_M$ to $L_C$.

$MRP_L = S_L$ (wage equals both). Supply and demand intersect where marginal social benefit equals cost.

$MFC = w$ (constant and equal to $AFC$). Horizontal supply means constant wage regardless of quantity hired.

$L_C$ is larger. Monopsony restricts employment below competitive level.

Minimum wage set above the monopsony wage. Effective when set higher than what monopsonist would pay.

Pay the wage on the labor supply ($AFC$) at that $L$. Read wage from supply curve at optimal $L$, not from $MFC$ curve.

A market with a single buyer of an input, facing the market supply. Single buyer has market power over input price, unlike competitive markets with many buyers.

$MRP_L = MP_L \times MR$. With market power in output, use $MR$ not $P$ to value marginal product.

$MRP_L = MP_L \times P$. Marginal product times output price gives revenue from last worker.

$MFC > AFC$ for additional labor units. Must raise wages for all workers to attract more, so marginal exceeds average.

The extra cost of hiring one more unit of labor. Includes wage increase for all workers when hiring one more.

The monopsonist’s average factor cost (AFC) curve. AFC shows the average cost per worker, which equals the supply curve price.

Hire where $MRP_L = MFC$. Profit maximizes where marginal benefit equals marginal cost of labor.

$MRP=MP\times P$. Revenue from last worker equals their output times product price.

$MRP=MP\times MR$. With market power in output, use MR not price.

Higher wage and higher employment (up to competitive level). Forces monopsonist to act more like competitive employer.

It must raise the wage to attract additional workers. Higher wages needed since it's the only employer competing for workers.

A single buyer of a factor of production (usually labor). Has market power as the sole employer in the labor market.

Hire where $MRP=MFC$. Equates marginal benefit and marginal cost of hiring.

From the labor supply (AFC) curve at $L^*$. Read wage from supply curve at optimal employment level.

The average factor cost (AFC) of labor at each quantity. Shows the wage needed to hire each quantity of workers.

Employment where labor demand ($MRP$) equals labor supply. Competitive wage where demand and supply intersect.

Lower wage and lower employment. Monopsony power restricts hiring and depresses wages.

$MRP>w$ at the monopsony quantity of labor. Workers produce more value than their wage cost.

Underemployment: $L_m<L_c$ where $MRP>w$ for missing workers. Some workers willing to work for less than their MRP aren't hired.

The additional cost of hiring one more unit of labor. Includes wage increase for all workers when hiring one more.