3.4.6 - Monopsony

Question 1

What is a monopsony?

Answer 1

only one buyer in the market, so characteristics as monopoly and aim to profit MAX. firms experience monopsony power by having a large market share - monopsonists drive down their suppliers prices

Question 2

Is a monopsony efficient?

Answer 2

No, they are no allocatively efficient, demand does not equal supply, lower prices for the consumer but less supply

Question 3

Do monopsonists profit max?

Answer 3

monopsonist buys where MC=MR so it profit maximises

Question 4

Evaluation of monopsony for consumers

Answer 4

Consumers - lower prices BUT less supply (depends on PES) - may help counterbalance monopoly and lower quality

Question 5

Evaluation of monopsony for employees

Answer 5

Employees of suppliers - lower profit therefore sack staff
Employees of monopsonist - more profits so therefore increased wages, less quantity to make

Question 6

Evaluation of monopsony for suppliers

Answer 6

lower prices/less profit, some will quit market but some may have guaranteed buyers

Question 7

Evaluation of monopsony for the monopsonist

Answer 7

higher profits from lower prices, lead to increased investment and increased dynamic efficiency (average costs AC will decrease over time)

Question 8

What is a bilateral monopoly?

Answer 8

Monopoly meets monopsony, both sides have ‘monop’ power therefore they might reach the market equilibrium price