All Flashcards
What is the definition of a monopsony?
A market with only one buyer for a resource (e.g., labor) and many sellers.
Define Marginal Resource Cost (MRC).
The cost of hiring one additional unit of a resource (e.g., labor). In a monopsony, MRC > Supply.
What is Marginal Revenue Product (MRP)?
The additional revenue generated by employing one more unit of a resource (e.g., labor).
What does it mean to be a 'wage maker' in a labor market?
A firm that has the power to set the wage rate, rather than accepting the market wage.
Define worker exploitation in a monopsony.
Paying workers less than their marginal revenue product (MRP) due to the firm's market power.
What is the hiring rule for a monopsony?
Hire labor up to the point where Marginal Revenue Product (MRP) = Marginal Resource Cost (MRC).
What is the relationship between the supply curve and the MRC curve in a monopsony?
The Marginal Resource Cost (MRC) is greater than the supply curve (willingness to sell).
What is the shape of the demand curve in a monopsony?
The demand curve slopes downwards due to the law of diminishing marginal returns.
What is the shape of the supply curve in a monopsony?
The labor supply curve slopes upwards.
Define a price floor.
A minimum price set by the government that is above the equilibrium price.
On a monopsony graph, where is the profit-maximizing quantity of labor?
At the intersection of the MRC and MRP curves.
On a monopsony graph, how do you find the wage rate?
Go down from the intersection of MRC and MRP to the supply curve, then across to the vertical axis.
What does the area between the MRP and the wage rate represent?
Worker exploitation.
On a monopsony graph, how do you find the quantity of labor in a competitive market?
Find the intersection of the supply curve and MRP.
What happens to the MRC curve when a minimum wage is imposed?
The MRC becomes horizontal at the minimum wage until it intersects with the original MRC curve.
What does the demand (MRP) curve show?
This curve shows the value of each worker to the firm.
What does the supply curve show?
The supply curve shows the minimum wage workers are willing to accept.
What does the MRC curve represent?
The MRC curve represents the cost of hiring each additional worker, considering the wage increase for all existing workers.
How do you find the profit maximizing quantity?
This is where the MRC and MRP curves intersect. Go down to the horizontal axis to find the number of workers hired.
How do you find the wage rate?
Go down from the intersection of MRC and MRP to the supply curve, and then across to the vertical axis. This is the wage the monopsony will pay.
What are the key differences between a monopsony and a perfectly competitive labor market?
Monopsony: One firm, wage maker, wage below MRP, MRC > Supply, lower employment. Perfectly Competitive: Many firms, wage taker, wage equals MRP, MRC = Supply, higher employment.
How does the wage rate differ between a monopsony and a perfectly competitive labor market?
Monopsony: Wage rate is below MRP. Perfectly Competitive: Wage rate is equal to MRP.
How does the number of firms differ between a monopsony and a perfectly competitive labor market?
Monopsony: One firm. Perfectly Competitive: Many firms.
How does the level of employment differ between a monopsony and a perfectly competitive labor market?
Monopsony: Lower level of employment. Perfectly Competitive: Higher level of employment.
Is there worker exploitation in a perfectly competitive labor market?
No, there is no worker exploitation in a perfectly competitive labor market.
How does wage control differ between a perfectly competitive labor market and a monopsony?
Perfectly Competitive Labor Market: Wage Taker. Monopsony: Wage Maker.
How is the wage rate determined in a perfectly competitive labor market?
Market Determined.
What is the relationship between MRC and Supply in a perfectly competitive labor market?
MRC = Supply.
How does the wage rate and level of employment compare between a perfectly competitive labor market and a monopsony?
Perfectly competitive labor market: Higher wage rate and a higher level of employment. Monopsony: A lower wage rate and a lower level of employment.
How does the number of firms affect the wage rate?
Many firms: Higher wage rate. One firm: Lower wage rate.