3.4.6 Monopsony

Question 1

What are the characteristics of a monopsony

Answer 1

• Wage makers
• Will maximise revenue from workers by hiring where Marginal revenue product = Marginal cost
• Employs lower levels of workers
• lower wages than in a competitive market

Question 2

Define a monopsony

Answer 2

Is the sole employer of labour/goods/services in a given industry

e.g. teachers + nurses

Question 3

Describe the graph for monopsony

Answer 3

Question 4

What is the benefits to firms acting like a monopsony

Answer 4

Bigger purchasing economies leading to lower LRAC

higher profit and dynamic efficiency

Question 5

What are the benefits to consumers of monopsonies

Answer 5

May gain lower prices

improved value for money

Question 6

What are the drawbacks to monopsonies

Answer 6

Businesses may use their buying power to squeeze lower prices to cut out suppliers, delays in payment to suppliers

fall in employment as suppliers try to cut costs and some firms maybe forced to leave the industry/enter a new one

fewer funds for suppliers to invest (however suppliers many increase efficiency)

consumers maybe faced with less choice, poorer quality