Th3.4: Characteristics and Conditions of Monopsony Flashcards
What is monopsony?
where there is only one buyer in the market and other than this it has the same basic characteristics as a monopoly - they can prevent new firms entering the market and aim to profit maximise
In real life, pure monopsonies rarely exist but…
many firms experience monopsony power, when they buy a large percentage of the market
Why will they pay their suppliers the lowest price possible?
to minimise their costs and make the most of their position as the only buyer - this will enable them to maximise profit
What will the value of the goods they buy depend on?
how much money they can make with these goods and this is determined by the demand curve of the goods they make and sell
Refer to PP
Look at Graph 42. Where will they produce?
where the cost to them (MC) is equal to the value they get (AR). hence they will produce where MC = D
Refer to PP
Look at Graph 42. What is the supply curve for the firm?
the supply curve for the market so will be upwards sloping
Refer to PP
Look at Graph 42. This means the MC curve is above the supply curve since…
it costs more to pay for the last good than the average cost of all the goods (as cost rises with output)
Refer to PP
Look at Graph 42. If the market was competitive, where would they produce?
they would produce where supply is equal to demand at Q2P2
Refer to PP
Look at Graph 42. In a monopsony where would the firm decide to produce?
produce MC = AR at Q2P2
