AP Microeconomics AMSCO Guided Notes
5.4: Monopsonistic Markets
AP Microeconomics Guided Notes
AMSCO 5.4 - Monopsonistic Markets
Essential Questions
- What is a monopsony, and how does it affect wages?
I. Characteristics of Monopsonistic Markets
1. What is a monopsony and how does it differ from a monopoly?
2. Why was the U.S. space program an example of a monopsonistic labor market?
II. Monopsonies and Wages
1. How does wage-setting differ between a monopsonistic employer and employers in a competitive labor market?
2. What happened to major league baseball salaries after the reserve clause was overturned in 1975 and why?
III. Monopsonies and Power
1. What types of power do monopsonies exercise beyond controlling wages?
2. How can monopsonies pressure local governments and suppliers?
IV. Near-Monopsonies
1. How can a large company exercise monopsony-like power even when other employers are hiring in the same area?
V. Monopsonies and Competition
1. Why can a monopsony in the labor market still face competition and pressure to lower prices?
VI. Profit-Maximizing Behavior in Monopsonistic Markets
A. What the Graph Means
1. How do the labor supply curve and marginal revenue product of labor change as a monopsonist hires more workers?
B. Advantages of a Monopsony
1. Why is the marginal factor cost greater than the supply price of labor in a monopsony?
2. How would a minimum wage law or increased competition affect a monopsonist's wage-setting ability?
C. Pressure to Pay Higher Wages
1. Why does the marginal factor cost rise faster than the labor supply curve in a monopsony?
2. How do wage increases for new workers affect the wages of previously hired workers in a monopsony?
D. Calculating Profit-Maximizing Behavior in a Monopsony
1. What is the relationship between marginal revenue product and marginal factor cost that determines a monopsonist's hiring decisions?
2. How does a monopsonist determine the profit-maximizing quantity of labor to hire?
Key Terms
monopsonistic
monopsony