What is a monopsony equilibrium?

In a monopsony market, the monopsonist firm—like any profit‐maximizing firm—determines the equilibrium number of workers to hire by equating its marginal revenue product of labor with its marginal cost of labor.

How does monopsony affect the equilibrium wage and employment levels?

To maximize profits, a monopsonist will hire workers up to the point where the marginal cost of labor equals their labor demand. This results in a lower level of employment than a competitive labor market would provide, but also a lower equilibrium wage.

What is a monopsony and why is it a problem?

Monopsony can lead to lower wages for workers. This increases inequality in society. Workers are paid less than their marginal revenue product. Firms with monopsony power often have a degree of monopoly selling power. This enables them to make high profits at the expense of consumers and workers.

What are the conditions of monopsony?

A monopsony is a market condition in which there is only one buyer, the monopsonist. Like a monopoly, a monopsony also has imperfect market conditions. The difference between a monopoly and monopsony is primarily in the difference between the controlling entities.

Are monopsonies illegal?

In a monopsony, a single buyer controls or dominates the demand for goods and services. Both a monopoly and monopsony can result in high profits for the dominant entity but often are considered illegal because they inhibit competition.

Why can a monopsony suppress wages?

To increase its profits, the monopolist raises prices and thus lowers production (because fewer consumers are willing to pay these inflated prices). Similarly, to raise its profits, a monopsonist lowers wages below the value of the workers to the employer.

Why does the monopsony equilibrium give rise to a deadweight loss 5 marks?

Inefficiency in a Monopoly The monopoly pricing creates a deadweight loss because the firm forgoes transactions with the consumers. The deadweight loss is the potential gains that did not go to the producer or the consumer.

What is an example of monopsony?

The classic example of a monopsony is a company coal town, where the coal company acts the sole employer and therefore the sole purchaser of labor in the town.

What are the disadvantages of monopsony?

Problems of Monopsony Exploitation in Labour Markets

• Lower wages.
• Increased wage inequality.
• Workers lack bargaining power in getting improved working conditions.
• Reduced labour productivity due to lack of motivation and feeling of being valued.

What are the types of monopsony?

In economics, a monopsony is a market structure in which a single buyer substantially controls the market as the major purchaser of goods and services offered by many would-be sellers….Monopsony.

Is Apple a monopsonist?

In this way, according to Dediu, Apple has become not a monopoly (a single seller), but a monopsony — the one buyer that can control an entire market.

What is oligopsony and monopsony?

As nouns the difference between monopsony and oligopsony is that monopsony is a market situation in which there is only one buyer for a product; such a buyer while oligopsony is an economic condition in which a small number of buyers exert control over the market price of a commodity.