Lecture_notes_monopsony

Lecture_notes_monopsony - * L to be optimal is MRP ( * L |...

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Monopsony. 1. Monopoly Demand for an Input. Recall that in perfectly competitive (input and output) markets, the quan- tity an input ( e.g. , labor), is optimal only if P · MP ( * L | ¯ K )= w V MP ( * L | ¯ K )= w. For a monopolist, the corresponding condition is MR · MP ( * L | ¯ K )= w MRP ( * L | ¯ K )= w, where MRP ( * L | ¯ K ) is the marginal revenue product of labor.
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2. Monopsony Demand for an Input. A monopsonist is a single buyer of an input and faces an input supply func- tion; e.g. , a labor supply function: L = S L ( w ) or inverse labor supply function, w = W ( L ). For a monopsonist, the condition for
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Unformatted text preview: * L to be optimal is MRP ( * L | K ) = ME ( * L ) , where ME ( * L ) = W ( L ) + dW ( L ) dL L is the marginal expenditure on labor. 3. Monopsony Distortion of Resource Allocation. Perfect Competition (in both the out-put and the input market): V MP ( * L ) = w . Monoposony: V MP ( * L ) > W ( * L ). Monopsony restricts input quantity and input price below the eFcient levels. 4. Corrective Policies. Anti-trust law. Unionization. Minimum wage laws....
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Lecture_notes_monopsony - * L to be optimal is MRP ( * L |...

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