+
Homework:
1. FRQ #2
2. Read Mod. 72
Imperfect Competition and the Monopsonist’s
Labor Market
Students will state the derive the implications of an imperfectly competitive firm
hiring labor by analyzing a sample market and stating the consequences of not
operating in a perfectly competitive labor market
+ Imperfect Product Market and MRP

In a perfectly competitive product market the wage rate
equals the marginal resource/factor cost @ equilibrium

Here is how they differ:
* noting about cost here…
QL
QOUT
MPL
PriceOUT
TR
MR
MRP
0
0
-
-
-
-
-
1
5
5
$10
$50
$50
250
2
12
7
$9
$108
$58
406
3
16
4
$8
$128
$20
80
4
19
3
$7
$133
$5
15
5
21
2
$6
$126
-$7
x
The big idea of this table
is that out demand curve
for labor/MRP curve is
still a downward sloping
inverse relationship
between wage and QL
Price is not constant!
Monopolist must subject
themselves to the price
effect to sell additional
output
MRP = MPL ×
MR
Monopsonist
and
the
Labor
Market
+

Marginal resource/factor cost WILL NOT be constant!

Monopsonist: One firm buyer of factors of production

To hire an additional (marginal) worker, the firm must
increase the wage of that worker….and the wage for all the
previous workers they have hired!!! (price effect in labor
market)
QL
Wage
Total
CostL
MFCL
0
-
-
-
1
$6
$6
6
2
$7
$14
8
3
$8
$24
10
4
$9
$36
12
5
$10
$50
14
Keep in mind:
Out markets labor supply curve is
still the standard market supply curve
 people supply more labor @
higher wages
The fact that MFC increase tell us:
S and MRC in a monopsonist’s labor
market deviate!!!
MRC ABOVE SL
+
Imperfect Labor Market
(Monopsonist) Illustrated
MRC
SL
Rules:
1. Firm always hires the
quantity of labor: MRC = MRP
Q2
2. Wage = SL @ Q2
W2
Just like a monopoly:
Hire less and pay lower wages
than perfectly competitive!
What are W1 and Q1?
D = MRP