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Chapter 14: Q. 24 (page 351)

How does monopsony affect the equilibrium wage and employment levels?

Short Answer

Expert verified

By comparing the marginal revenue product of labor with the marginal cost of labor, it determines the ideal number of workers to hire.

Step by step solution

01

Definition

Monopsony is a market structure in which a solitary purchaser controls a critical part of the market as the essential buyer of labor and products from countless expected providers.

02

Explanation

In case of a monopsony labor market, there is the presence of only one purchaser for the labour. The buyer will be able to determine the price to pay as well as the quantity of labor to purchase or hire because a single consumer will be the price maker. This quantity and pricing would be lower in a completely competitive market.

When the marginal cost of labor matches the marginal revenue output of labor, the equilibrium number of workers is reached.

03

Conclusion

As a result, in a monopsony market, the equilibrium number of workers to hire is determined by matching the marginal revenue product of labor to the marginal cost of labor.

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Most popular questions from this chapter

Table 14.13 shows information from the supply curve for labor for a monopsonist, that is, the wage rate required at each level of employment.

a. What is the monopsonist鈥檚 marginal cost of labor at each level of employment?

b. If each unit of labor鈥檚 marginal revenue product is $13, what is the firm鈥檚 profit-maximizing level of employment and wage?

How does a bilateral monopoly affect the equilibrium wage and employment levels compared to a perfectly competitive labor market?

What is a bilateral monopoly?

What factors can explain the relatively small effect of low-skilled immigration on the wages of low-skilled workers?

Table 14.10 shows levels of employment (Labor), the marginal product at each of those levels, and the price at which the firm can sell output in the perfectly competitive market where it operates.

LaborMarginal product of LaborPrice of the product
110\(4
28\)4
37\(4
45\)4
53\(4
61\)4
  1. What is the value of the marginal product at each level of labor?
  2. If the firm operates in a perfectly competitive labor market where the going market wage is $12, what is the firm鈥檚 profit maximizing level of employment?
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