Why does a monopsonist pay a lower wage and hire fewer workers than a competitive market?
A buyer facing upward factor supply has ME above wage, so it sets ME=MRPL and reads wage from supply.
Follow the cause and effect
Write total labor expenditure w(L)L and derive ME.
Set ME=MRPL for Lm, then use supply for wm.
With a minimum wage, build piecewise ME and inspect the kink.
The model you are using
Conditions for this model
Uniform wage, continuous labor supply and the specified marginal revenue product schedule.
The exam trap
Do not read wages from ME, and do not assume a minimum wage always cuts monopsony employment.
Connect the reasoning to the graph
What changes
- ME lies above labor supply; ME=MRPL determines L, then project to supply for w.
What stays fixed
Uniform wage, continuous labor supply and the specified marginal revenue product schedule.
Keep these conditions throughout the comparison; change only what the case above specifies.
What to inspect
With a minimum wage, build piecewise ME and inspect the kink.
Compare before and after, and locate the conclusion on the graph.
5 MINUTES · TRANSFER THE IDEA
Can you explain it without the lesson?
Draw a minimum-wage range that raises both wage and employment relative to monopsony.