The profit-maximizing employment level for a monopsonist occurs where:

Question

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A monopsonist will hire workers up to the point where the marginal revenue product (MRP) of labor equals the marginal factor cost (MFC) of labor. However, since a monopsonist has bargaining power, they can reduce the wage rate below the value of the MRP, resulting in a gap between the wage rate and MRP. The profit-maximizing employment level occurs where the gap between wage and MRP is equal to the gap between wage and MFC, which is where MRP and MFC intersect. Therefore, the optimal employment level for a monopsonist is where MRP = MFC.

The Profit-Maximizing Employment Level for a Monopsonist Occurs Where