1. Monopsony

2. Let’s Review Factors Factors- Machines, Labor – continuous input. Wage rate set by labor supply and demand Firms and employees are wage takers, not wage setters. Marginal Resource Cost- Cost of an additional worker Marginal Revenue Product- the additional revenue created by the additional worker (Price of product times Marginal Product of Labor 2

3. Let’s Review Factors A firm will produce until MRP=MRC In Perfect Competition: MRP=Demand MRC=Supply 3

4. SLSL DLDL Wage Q Q IndustryFirm QEQE WEWE QeQe D L =MRP S L =MRC Side-by-side graph showing Market and Firm

5. Monopsony One buyer of labor When does this occur? Their supply curve is the industry supply curve. One firm is now a wage setter (factor cost setter) instead of wage taker (factor cost taker) 5

6. Examples of Monopsony Mining Companies in mining towns The US Military Walmart in small towns? 6

7. 7 $ L Wage Qs 4 0 5 1 6 2 7 3 8 4 1 2 3 4 87658765 S In this example the suppliers of labor will supply a q of 1 when the wage is 5, and so on. WageQuantity 40 51 62 73 84

8. 8 $ E Wage Qs TRC MRC 4 0 0 xxx 5 1 5 5 6 2 12 7 7 3 21 9 8 4 32 11 1 2 3 4 87658765 S Marginal Resource (labor) Cost is now different than labor supply, it’s higher! Meaning the employer can gain additional workers at additional cost. The employer can choose the wage rate! MRC WageQuantityTotal Resource Cost Marginal Resource Cost 400N/A 5155 62127 73219 843211

9. Where would a monopsony produce Quantity-MRP=MRC But what wage would people be willing to accept at that quantity The monopsonist will move down to the supply curve- hiring fewer people at a lower wage – creating deadweight. 9

10. Monopsony- Inefficient Labor Market Deadweight created Fewer jobs at lower wages