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Lecture 6 - Lecture Lecture 6 Monopsony Roadmap Roadmap...

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Lecture 6 Lecture 6 Monopsony
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Roadmap • Monopsony Monopsony Profit Maximization and Monopsony Mi i W d M Minimum Wages and Monopsony Welfare Implications of Monopsony
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Why might labor supply to an industry b d l i ? be upwards sloping? To hire a new worker an industry needs to (1) attract new workers to the industry and (2) pay the new worker worker. • Increasing the wage a little may Increasing the wage a little may attract a few more workers, but only those that are very mobile. To attract even more workers, you have to overcome these “frictions” by offering an even higher wage by offering an even higher wage.
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Monopspony: From Ancient Greek (monos) “single” + (ops ō nia) “purchase” Example: – Wal-Mart (its buying power for a given item may dwarf the a given item may dwarf the remaining market). – Local Team for Baseball players – Local Hospital for Nurses – Local University for College Professors
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In The Labor Market Monopspony : When firms are large relative to the market so that they face an upwards sloping labor supply curve. • To hire an additional worker a To hire an additional worker, a monopsonist must increase the wage. Since this higher wage applies to all units Since this higher wage applies to all units (all previous workers get a raise), the marginal expense is higher than the new marginal expense is higher than the new wage paid.
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eXsu*mple How many of you will proofread my slides? OK…. Lets take bids on the wage. I will take the lowest wage bid and hire that person. OK….I need another person. I will take the lowest wage bid and hire that person.
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