monopsony

define monopsony

a market structure where multiple sellers face a single buyer

2 features

1. a single buyer has power of prices they pay

2. buyers act as price makers

how do trade unions work

1. workers join together when there is a monopsony power, this works because unions act to collectively bargain for its members

advantages and disadvantages for firms

1. lower AC because firms can buy cheaper supply which increases productive efficiency

2. investigation by the CMA

draw the diagram. what is the market outcome?

where is equalibrium wage?

where can monopsonists afford to pay workers?

where do monopsonists pay workers?

the market outcome is that workers ar underpayed compared to what they deserve to be payed
monopsonists can afford to pay workers where MCl= MRP, this is where the extra revenue gained from employing a worker is equal to the margional cost to the firm

market equilibrium is where ACL=MRP. this is a competitive wage because this is where firms are maxamising their profit. and becaue firms are price takers in a competitive market

monopsonists pay a wage rate which is significantly below their MRP