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What is a monopsony? Discuss its characterisics; when would a monopsony firm be in equilibrium?

What is a monopsony? Discuss its characterisics; when would a monopsony firm be in equilibrium?

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Answer #1

Monopsony is a market condition in which there is only one buyer. It is also referred to as buyer's monopoly. In monopsony the large buyer forces the prices to fall.

The characteristics of monopsony are:

1. There is a single firm which purchases all the output in a market.

2. There are no other buyers.

3.There are restrictions on the entry of other buyers in the industry.

Equilibrium in monopsony:

In monopsony the profit maximizing quantity of labor is the quantity at which marginal revenue productivity of labor is equal to the marginal factor cost. The wage rate at which the firm can obtain the equilibrium quantity of labor is known as the equilibrium wage.

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