Imperfect Competition and the Monopsonist’s Labor Market Homework: FRQ #2 Read Mod. 72 Imperfect Competition and the Monopsonist’s Labor Market Students will state the derive the implications of an imperfectly competitive firm hiring labor by analyzing a sample market and stating the consequences of not operating in a perfectly competitive labor market

Imperfect Product Market and MRP In a perfectly competitive product market the wage rate equals the marginal resource/factor cost @ equilibrium Here is how they differ: * noting about cost here… QL QOUT MPL PriceOUT TR MR MRP - 1 5 $10 $50 250 2 12 7 $9 $108 $58 406 3 16 4 $8 $128 $20 80 19 $7 $133 $5 15 21 $6 $126 -$7 x The big idea of this table is that out demand curve for labor/MRP curve is still a downward sloping inverse relationship between wage and QL Price is not constant! Monopolist must subject themselves to the price effect to sell additional output MRP = MPL × MR

Monopsonist and the Labor Market Marginal resource/factor cost WILL NOT be constant! Monopsonist: One firm buyer of factors of production To hire an additional (marginal) worker, the firm must increase the wage of that worker….and the wage for all the previous workers they have hired!!! (price effect in labor market) Keep in mind: Out markets labor supply curve is still the standard market supply curve  people supply more labor @ higher wages The fact that MFC increase tell us: S and MRC in a monopsonist’s labor market deviate!!! MRC ABOVE SL QL Wage Total CostL MFCL - 1 $6 6 2 $7 $14 8 3 $8 $24 10 4 $9 $36 12 5 $10 $50 14

Imperfect Labor Market (Monopsonist) Illustrated MRC Rules: Firm always hires the quantity of labor: MRC = MRP Q2 Wage = SL @ Q2 W2 Just like a monopoly: Hire less and pay lower wages than perfectly competitive! What are W1 and Q1? SL D = MRP