Hey there! Sign in to join this conversationNew here? Join for free
    • Thread Starter
    Offline

    1
    ReputationRep:
    Hi there, just revising through A2 Aqa Unit 3 notes on labour markets, and can't find a good explanation of the monopsony diagram. .

    Can someone explain why monopolies don't use AC = MRP but rather MC = MRP, and then lower Wage from W3 to W2?

    I understand they can employ at a lower cost, but if so, why not employ at lower quantities of Q2 and thus at a lower price?

    I'm just not understanding the significance of AC and MC here for monopsonies.
    Thanks
    Offline

    8
    ReputationRep:
    Profit maximisation is MR=MC, which provides the quantity of labour you need to employ to maximise profits. At Q2 a monopsony is not paying W3 but W2.
    • Thread Starter
    Offline

    1
    ReputationRep:
    Thanks for your reply, i think I have understood it.

    The monopsony being the sole employer means they employ at profit maximising level (where MRP=MC).

    However, as they are the sole employer, they are able to drive the wage down the W2 from W3 (as this is where the labour supply is), whilst in comparison, in a competitive situation other firms would take this labour by providing W1.
    • Thread Starter
    Offline

    1
    ReputationRep:
    However, why do firms in competitive markets employ at AC = MRP, if they can be at their profit maximising level MRP=MC?
 
 
 
  • See more of what you like on The Student Room

    You can personalise what you see on TSR. Tell us a little about yourself to get started.

  • Poll
    Would you rather give up salt or pepper?
  • See more of what you like on The Student Room

    You can personalise what you see on TSR. Tell us a little about yourself to get started.

  • The Student Room, Get Revising and Marked by Teachers are trading names of The Student Room Group Ltd.

    Register Number: 04666380 (England and Wales), VAT No. 806 8067 22 Registered Office: International House, Queens Road, Brighton, BN1 3XE

    Write a reply...
    Reply
    Hide
    Reputation gems: You get these gems as you gain rep from other members for making good contributions and giving helpful advice.