Consider a monopsonistic labour market.Ten units of labour will be supplied if the wage rate is $12,and 11 units of labour will be supplied if the wage rate is $14.The marginal cost of the eleventh worker is

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In a monopsonistic labor market, the firm is the sole buyer of labor and must increase the wage rate to hire additional workers. The marginal cost of hiring the eleventh worker is more than the wage paid to that worker because the firm must pay the higher wage to all workers, not just the additional one. Therefore, the marginal cost of the eleventh worker is more than $14.

Consider a Monopsonistic Labour Market