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Monopsony

Monopsony. Defining Monopsony. Monopoly = price setters that are sole sellers of a good or service Monopsony = price setters that are the sole buyers of a good or service Monopsony = single buyer in a market

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Monopsony

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  1. Monopsony

  2. Defining Monopsony • Monopoly = price setters that are sole sellers of a good or service • Monopsony = price setters that are the sole buyers of a good or service • Monopsony = single buyer in a market • Monopsonies face an upward sloping supply curve: to buy more of a factor (e.g., labor), they must raise the price

  3. Examples • Major League Soccer (sort of) • Only buyer of pro soccer labor in US • Most players sign contracts with league, not individual teams • Wal*Mart (sort of) • Only huge buyer of many products, so heavily influences market • US Military (sort of) • Only buyer of top weapons programs • Locally (sort of): • BVSD (only major buyer of teacher labor in area)

  4. Defining Monopsony • Monopsony graphs work similarly to monopoly graphs, but use supply curve instead of demand curve • Marginal Factor Cost (MFC) slopes more steeply than Supply • Monopsonies must raise price to increase supply of the factor • Increase in price affects all units of the factor supplied • Marginal Revenue Product (MRP) still slopes downward • MRP = the demand curve for the factor

  5. Monopsony and Profit Maximizing • Monopsonies, like any company, want to buy cheaply • All firms will buy quantity of factor where MFC = MRP • Monopsonies, though, pay a lower price (“wage” = Wm) • What are the implications of monopsony for workers? • For the monopsony?

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