Log out Go to App
Go to App

Learning Materials

Features

Discover

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.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

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’s profit maximizing level of employment?

If the United States allows a greater quantity of highly skilled workers, what will be the impact on the average wages of highly skilled employees?

Given the decline in union membership over the past 50 years, what does the theory of bilateral monopoly suggest will have happened to the equilibrium level of wages over time? Why?

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’s marginal cost of labor at each level of employment?

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

If immigration is reduced, what is the impact on the wage for low-skilled labor? Explain.
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free