The second type of factor (resource) market is called a monopsony. A monopsony is an imperfectly competitive factor market where only a single firm buys resources.
Characteristics of Monoposonies
Differences between a Perfectly Competitive Labor Market and a Monopsony
Graphing a Monoposony
In a monopsony, we determine the number of workers by finding where MRP = MRC and then going down to the horizontal axis. We determine wage by finding MRP = MRC and then going down to the supply curve and over to the vertical axis.
There is 1 large hospital in a city that hires nurses. There are no other hospitals nearby that nurses are willing or able to travel to. What is the labor cost for this firm based on the graph?
Since the large hospital is the only firm hiring nurses, we know that this is a monopsony. Monopsonistic firms hire the quantity where MRP = MRC, but only pay the wage level where the quantity intersects the labor supply curve. Therefore, we know that the equilibrium wage is $12 and the equilibrium quantity is 30. To find our total labor costs for nurses, we simply multiply the wage by the quantity ($12 x 30 = $360).
Graph for Large Hospital Hiring Only Nurses
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