Monopsonistic Markets

Monopsony

A market structure where there is only one major buyer of labor, typically one large employer.

Marginal Cost of Labor (MCL)

The cost of hiring an extra worker, which is higher than the wage paid due to the need to raise wages for all employees.

Wage-setting power

The ability of an employer in a monopsonistic market to control the wage paid to workers.

Minimum Wage

A legally mandated lowest wage that employers can pay workers, which can reduce employer wage-setting power in a monopsony.

Marginal Factor Cost (MFC)

In a monopsony, the cost of hiring additional workers that increases the wage rate for all employees, making MFC higher than the wage rate.

• change in total factor cost/change in quantity factor

Wage Efficiency

When workers are paid closer to their marginal contribution to the firm, improving overall efficiency in wage distribution.

Employment Increase

A potential effect of introducing a minimum wage in a monopsonistic market that can lead to higher levels of employment.

Inefficiency in labor market

A result of monopsony where workers are paid less than the value they bring, leading to fewer workers being hired.

Competitive Market Hiring

In a competitive market, firms hire where wage equals marginal revenue product (MRP).

Monopsonistic Market Hiring

In a monopsony, firms hire where marginal cost of labor (MCL) equals marginal revenue product (MRP).