A monopsonist is the single buyer in a market with many sellers, most often a single employer of labor in AP Micro, who hires where marginal revenue product equals marginal factor cost but pays a lower wage taken from the labor supply curve.
A monopsonist flips the monopoly idea around. Instead of one seller facing many buyers, it's one buyer facing many sellers. In AP Micro, the classic example is a single employer in a town (think a coal company in a one-company town) buying labor from many workers.
Because the monopsonist is the whole demand side of the labor market, it faces the upward-sloping market supply of labor. To hire one more worker, it must raise the wage, and it has to raise the wage for everyone it already employs. That's why the marginal factor cost (MFC) of one more worker is greater than the wage itself (EK PRD-4.D.2). The firm keeps hiring as long as the marginal revenue product (MRP) of labor exceeds MFC (EK PRD-4.D.1), so it stops where MRP = MFC. Then it pays the wage from the supply curve at that quantity, which sits below MRP. The result is fewer workers hired and a lower wage than a competitive labor market would deliver.
The monopsonist is the centerpiece of Topic 5.4 (Monopsony Markets) in Unit 5: Factor Markets. Learning objective 5.4.A asks you to define the characteristics of monopsonistic markets with graphs, 5.4.B asks you to explain the firm's profit-maximizing hiring behavior, and 5.4.C asks you to calculate it from a graph or table. That means you need to find the hiring quantity where MRP = MFC, then drop down to the supply curve to read the wage. The monopsony graph is one of the most commonly drawn graphs in Unit 5 free response questions, and the wage-vs-MFC gap is the single detail that separates students who get it from students who don't.
Keep studying AP® Microeconomics Unit 5
Marginal Factor Cost (Unit 5)
MFC is what makes a monopsonist a monopsonist. In a competitive labor market, MFC equals the wage because the firm is a wage taker. For a monopsonist, MFC is the new worker's wage plus the raise given to every existing worker, so the MFC curve sits above the labor supply curve.
Monopoly (Unit 4)
Monopsony is the mirror image of monopoly. A monopolist restricts output to charge a price above marginal revenue; a monopsonist restricts hiring to pay a wage below MFC. If you understand why MR lies below demand for a monopoly, you already understand why MFC lies above supply for a monopsony. Same logic, flipped to the buying side.
Price Floor / Minimum Wage (Units 2 & 5)
Here's the twist worth knowing. In a competitive labor market, a binding minimum wage causes unemployment. In a monopsony, a well-placed minimum wage can actually raise both the wage AND employment, because it flattens the MFC curve at the floor and removes the firm's incentive to restrict hiring.
Supply of Labor (Unit 5)
The monopsonist faces the entire upward-sloping market labor supply curve, not a flat wage line. The wage it pays comes off this supply curve at the profit-maximizing quantity. Drawing the wage at the MRP = MFC intersection instead is the classic graphing error.
Multiple choice questions test the hiring rule directly. You'll see stems like the marginal-thinking question, where if MFC exceeds MRP the monopsonist should hire fewer workers, and questions asking why the marginal expense of hiring exceeds the wage rate (because raising the wage to attract one worker means raising it for all workers). Another common stem asks the effect on wages, and the answer is that a monopsonist pays a wage below the competitive level. On the free response side, expect to draw the full monopsony graph with labor supply, MFC above it, and MRP, then identify the quantity hired (MRP = MFC) and the wage (read off supply at that quantity). Calculation questions per LO 5.4.C may give you a wage table and ask you to compute MFC, where total labor cost at each quantity is the key intermediate step.
Both are 'one firm with market power,' but on opposite sides of the market. A monopolist is the single SELLER of a good and exploits buyers by charging a price above marginal cost. A monopsonist is the single BUYER (usually of labor) and exploits sellers by paying a wage below MRP. A monopolist's MR curve lies below its demand curve; a monopsonist's MFC curve lies above its supply curve. A firm can even be both at once, like a hospital that is the only seller of care and the only employer of nurses in town.
A monopsonist is the single buyer in a market, typically the only employer of labor, facing the upward-sloping market supply of labor.
The monopsonist hires where marginal revenue product equals marginal factor cost, then pays the lower wage found on the labor supply curve at that quantity.
MFC exceeds the wage because hiring one more worker requires raising the wage for every worker already employed, not just the new hire.
Compared to a competitive labor market, a monopsonist hires fewer workers and pays a lower wage.
A binding minimum wage set between the monopsony wage and the competitive wage can increase both employment and wages, which is the opposite of the competitive-market result.
On the graph, the wage comes from the supply curve, never from the MRP = MFC intersection point.
A monopsonist is the single buyer in a market with many sellers, usually the only employer of labor. It maximizes profit by hiring where marginal revenue product equals marginal factor cost and paying the wage from the labor supply curve, which is below MRP.
A monopolist is one seller with power over the price it charges; a monopsonist is one buyer with power over the price (wage) it pays. The graphs mirror each other, with MR below demand for a monopoly and MFC above supply for a monopsony.
No. The monopsonist finds its hiring quantity where MRP = MFC, but it pays the wage off the labor supply curve at that quantity, which is below both MFC and MRP. Drawing the wage at the intersection is one of the most common point-losers on the FRQ.
Per EK PRD-4.D.1, MFC equals the new worker's wage plus the wage increase given to all existing workers. Since the firm must raise everyone's pay to attract one more worker, the cost of that hire exceeds the wage itself.
Yes. A minimum wage set above the monopsony wage but at or below the competitive wage flattens the MFC curve at the floor, so the firm hires more workers at a higher wage. This is the reverse of the unemployment effect a price floor causes in a competitive labor market.
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