Labor Demand and Supply in a Monopsony

Labor Demand and Supply in a Monopsony - the wage that it...

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Labor Demand and Supply in a Monopsony A labor market in which there is only one firm demanding labor is called a  monopsony.  The single firm in the market is referred to as the  monopsonist.  An example of a  monopsony would be the only firm in a “company town,” where the workers all work for  that single firm.  Wage-searching behavior.  Because the monopsonist is the sole de-mander of labor in  the market, the monopsonist's demand for labor is the  market demand for labor.  The  supply of labor that the monopsonist faces is the  market supply of labor.  Unlike a firm  operating in a perfectly competitive labor market, the monopsonist does not simply hire  all the workers that it wants at the equilibrium market wage. The monopsonist faces the  upward-sloping  market supply curve; it is a  wage-searcher  rather than a  wage-taker.  If  the monopsonist wants to increase the number of workers that it hires, it must increase 
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Unformatted text preview: the wage that it pays to all of its workers, including those whom it currently employs. The monopsonist's marginal cost of hiring an additional worker, therefore, will not be equal to the wage paid to that worker because the monopsonist will have to increase the wage that it pays to all of its workers. A numerical example of a monopsony market is provided in Table 1 . The first two columns provide data on the market supply of labor that the monopsonist faces. The third column reports the total cost to the monopsonist of hiring each worker, which is just the wage times the number of workers. The fourth column reports the marginal cost of labor, which is the change in monopsonist's total cost of labor as it hires additional workers....
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This note was uploaded on 11/19/2011 for the course ECO 1310 taught by Professor Staff during the Fall '10 term at Texas State.

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