Monopsony and Monopoly

Monopsony and Monopoly - The price is NR = OP. At this...

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Monopsony and Monopoly: Besides being a monopsonist if the producer happens to be a monopolist in the product market as well then his surplus will be further enlarged. In Figure 56, we find that the producer enjoys monopoly power in both markets. Being a monopsonist in the labor market his MW - AW curves slope upwards as in the earlier case. Since he is a monopolist in the product market as well his marginal and average revenue product curves slope down and are distinct. MRP is below ARP. Once again the producer strikes equilibrium at point e where MRP = MW. At this point, N number of workers are employed. The price of the product is determined by a relevant point R on the AR curve.
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Unformatted text preview: The price is NR = OP. At this price, total revenue of the firm is OPRN. Wage rate is determined by the value of the average wage. It is therefore NL = OW. At this wage rate, the total wage payment is OWLN. The difference between the areas is the no profit surplus of the producer. Net Profit Surplus = OPRN - OWLN = WPRL The entire surplus is split into two parts: i) SPRe as surplus due to monopoly power in the producer market. ii) WSeL as exploitation of labor due to monopsony power in the labor market. The presence of monopsony has similar undesirable effects such as high price, low level of output, underutilization of capacity of production and loss of consumer surplus....
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This note was uploaded on 11/26/2011 for the course ECONOMIC ec 201 taught by Professor - during the Fall '10 term at Montgomery.

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Monopsony and Monopoly - The price is NR = OP. At this...

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