Dominick Salvatore Schaums Outline of Microeconomics, 4th edition Schaums Outline Series 2006

288 INPUT PRICING AND EMPLOYMENT [CHAP. 13
The equilibrium market price and employment level of input A are determined at the intersection of the
market demand curve and the market supply curve of input A, as described in Section 13.6 and Example
4. Each perfectly competitive buyer of input A will then hire input A as long as the MRP a (on the firm’s appropriate
MRP a and d a curves) exceeds P a and until MRP a ¼ P a .
Monopsony
13.12 INPUT SUPPLY CURVE AND MARGINAL RESOURCE COSTS
Monopsony refers to the case where there is a single buyer of a particular input or resource. Thus, the monopsonist
faces the (usually) positively sloped market supply curve for the input. This means that if the monopsonistic
firm wants more of the input, it must pay a higher price not only for the additional units but for all the units
of the input that it purchases. As a result, the marginal input or resource cost (MRC) exceeds the input or
resource price, and the marginal resource cost curve faced by the monopsonist lies above the input or resource
supply curve that the firm faces. (For the conditions giving rise to monopsony, see Problem 13.19.)
EXAMPLE 7 In Table 13.3, columns (1) and (2) give the market supply schedule of input A facing the monopsonist.
Column (3) refers to the total cost of hiring various quantities of input A and is obtained by multiplying each quantity of
input A used by the corresponding P a . Column (4) is obtained by subtracting successive TC a values of column (3) and
measures the change in the monopsonist’s TC per unit change in the quantity of input or resource A that the firm hires.
That is, MRC a ¼ DTC a /DQ a . Note that the MRC a . P a for the monopsonist. The values of columns (2) and (1) of
Table 13.3 are plotted as the S a curve and the values of columns (4) and (1) are plotted as the MRC a curve in Fig. 13-5.
Note that the values of the MRC a are plotted midway between the values on the horizontal axis.
Table 13.3
(1)
Q a
(2)
P a
(3)
TC a
(4)
MRC a
1 $1 $1 ..
2 2 4 $3
3 3 9 5
4 4 16 7
5 5 25 9
6 6 36 11
Fig. 13-5 Fig. 13-6