Labor Market Completion

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Presentation transcript:

Labor Market Completion Monopsony Labor Market Completion

Monopsony Definition: When one firm is the sole purchaser of a resource in the input market (factor market) 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 Monopsony hires less inputs LM < LC To hire more workers wages must rise for all workers (not a wage taker!) MFCM S = MFCc DL = MRPL Competitive Input Industry Wage ---------------- ------------------ WM LM --------------------- ------------- $10 =WC LC Ec EM Qty-Labor Bottom Line: Monsopony versus Competitive Input Industry: Monopsony hires less inputs LM < LC Monopsony firms pays less WM < WC

MICRO Final Exam Study Packet Everything you need to prepare for the exam….