3.4.6 Monopsony

What is a monopsony?

A market structure where there is only one buyer and many sellers.

What power do monopsonists have in the market?

They can set prices they pay to suppliers, acting as wage makers.

What does monopsony power indicate about the supply curve?

Firms in the market face an upward sloping supply curve.

At what point does a monopsonist maximize revenue?

When they buy at Q1, where marginal cost (MC) equals marginal revenue (MR).

What happens if a monopsonist buys more than Q1?

The additional cost of an extra unit would exceed the additional revenue, as MC > MR.

How does a monopsonist affect the price paid to suppliers?

They can reduce the price paid below the equilibrium of a perfectly competitive market.

What is an example of monopsony in the labor market?

A major employer, such as a coal mine owner, in a town where coal mining is the primary source of employment.

What is one benefit to firms operating as a monopsony?

They can drive down the prices they pay to suppliers, reducing production costs.

How can consumers benefit from a monopsony?

Lower production costs can lead to lower prices for consumers.

What is a potential downside for consumers in a monopsony?

Quality may fall as cheaper prices are set for production.

What is a cost to suppliers in a monopsony market?

They may not make as much profit as they could, leading to a focus on cutting costs.

What can happen to the dynamic efficiency of suppliers in a monopsony?

Suppliers may seek to reduce long-run average costs due to lower revenue.

What is a potential benefit for employees of a monopsonist?

They may receive higher wages if the firm is making higher profits.

What is a cost to the monopsonist when paying higher wages?

The monopsonist incurs more costs.

How does a monopsonist's market power affect output levels?

They can reduce the level of output below what would occur in a perfectly competitive market.

What is the relationship between marginal cost and supply in a monopsony?

Marginal cost is greater than supply when the monopsonist increases output.

What is the implication of a monopsonist's ability to set wages?

They have significant market power in determining employment conditions.

What does 'purchasing EoS' refer to in the context of a monopsony?

Economies of scale achieved through lower costs of purchasing inputs.

What is the effect of monopsony on market equilibrium?

It disrupts the equilibrium by paying less than what would be established in a competitive market.