Compared to a perfectly competitive labour market, a firm with monopsony power will typically pay a lower wage and employ fewer workers. This occurs because a profit-maximising monopsonist
hires workers up to the point where the marginal revenue product of labour is equal to the wage rate (average cost of labour).
acts as a monopoly supplier of labour to the wider economy.
equates the marginal revenue product of labour with the marginal cost of labour, which exceeds the wage rate.
restricts output in the product market to drive up the market price of its goods.
64 exam-style questions on AQA A Level Economics 1.6 The labour market (A-level only), covering 1.6.1 The demand for labour, marginal productivity theory, 1.6.2 Influences upon the supply of labour to different markets, 1.6.3 The determination of relative wage rates and levels of employment in perfectly competitive labour markets, 1.6.4 The determination of relative wage rates and levels of employment in imperfectly competitive labour markets, 1.6.5 The Influence of trade unions in determining wages and levels of employment, 1.6.6 The National Minimum Wage, and 1.6.7 Discrimination in the labour market. Each one has a worked solution and a mark scheme showing where the marks go.