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

CHAP. 13] INPUT PRICING AND EMPLOYMENT 303
(b)
(c)
Monopsony arises when an input is specialized and is thus much more productive to a particular firm than to any
other firm or use. Because of the greater input productivity, this firm can pay a higher price for the input and so
become a monopsonist. Monopsony also results from lack of geographical and occupational mobility of inputs.
Oligopsony and monopsonistic competition refer to other forms of imperfect competition in input markets. An
oligopsonist is one of few buyers of a homogeneous or differentiated input. A monopsonistic competitor is one
of many buyers of a differentiated input.
13.20 QS a ¼ 22 þ P a /5 (with P a given in dollars) is the market supply function for input A facing the monopsonist
buyer of input A. (a) Find the monopsonist’s supply and marginal input or resource cost
schedules for input A and (b) plot these schedules. (c) How would these schedules look if we were
dealing instead with an oligopsonist or monopsonistic competitor? A perfect competitor?
(a) Table 13.8
(1) P a ($) 10 15 20 25 30 35 40 45
(2) Q a 0 1 2 3 4 5 6 7
(3) TC a ($) 0 15 40 75 120 175 240 315
(4) MRC a ($) . . 15 25 35 45 55 65 75
In Table 13.8, rows (1) and (2) give the supply schedule of input or resource A faced by this monopsonist.
Rows (4) and (2) refer to the corresponding marginal cost schedule of input or resource A.
Fig. 13-20
(b)
(c)
See page 304 or the next page.
As imperfect competitors in input markets, oligopsonists and monopsonistic competitors also face a rising
supply curve of the input (i.e., they must pay higher input prices for greater quantities of the input). Thus,
the MRC . P of the input or resource and their MRC curve also lies above the input or resource supply
curve that they face. This is to be contrasted with the case of perfect competition in the input market,
where even though the market curve of the input is positively sloped, each buyer of the input is so small
that the firm can purchase all it wants of the input at its given market price (i.e., the buyer faces an infinitely
elastic supply curve of the input). Thus, for the perfectly competitive buyer of the input, the MRC curve
coincides with the horizontal supply curve of the input or resource and MRC equals the given market
equilibrium price of the input.
13.21 Given the S a and the MRC a curves of Fig. 13-20, if input A is the monopsonist’s only variable input and
if MRP a ¼ $60 at Q a ¼ 2, $50 at Q a ¼ 4, and $40 at Q a ¼ 6, (a) determine how many units of input A