For a monopsonist in a labour market,the firm's MC curve for labour lies the competitive supply curve for labour; just as the marginal revenue curve for a monopolist lies the demand curve for its product.

Question

Quizplus · Accepted Answer

A monopsonist has market power in the labour market, and can influence the wage rate it pays by hiring more or fewer workers. The competitive supply curve for labour represents the wage rate that would prevail if there were many firms competing for the same workers. The firm's MC curve for labour represents the additional cost (or marginal cost) of hiring one more worker. When the monopsonist hires one more worker, it not only pays the worker's wage, but also has to increase the wage for all the other workers it employs. Therefore, the firm's MR (marginal revenue) curve for labour lies below the competitive supply curve, just as the MR curve for a monopolist lies below the demand curve for its product. This means that the monopsonist will hire fewer workers and pay them a lower wage than would prevail in a competitive labour market.

For a Monopsonist in a Labour Market,the Firm's MC Curve