Principles of Microeconomics / Unit 13 MIC 1218 worked example, 60 to 90 seconds
The Monopsony Outcome
The idea
From a labor supply schedule, compute total factor cost at each number of workers, the number times the wage that attracts them, then marginal factor cost as the change in total cost. Hire while marginal revenue product is at least marginal factor cost, then read the wage from supply at that number. Compare with competition, where hiring continues while marginal revenue product is at least the supply wage.
In practice
Worked example: the town's supply is one worker at forty dollars a day, two at sixty, three at eighty, four at one hundred, five at one twenty and six at one forty. Marginal factor cost, from the changes in total cost, is forty, eighty, one twenty, one sixty, two hundred and two forty. Marginal revenue product is three hundred, two sixty, two twenty, one eighty, one forty and one hundred. The fourth worker's one eighty beats one sixty; the fifth's one forty does not beat two hundred: four workers, at the supply wage of one hundred. Competition would hire the fifth, whose one forty beats the supply wage of one twenty: five workers at one twenty.
Where people slip
The wage comes from supply at the chosen number, never from the marginal factor cost column: one hundred, not one sixty. The fourth worker is worth one eighty and paid one hundred; that gap is why unions come next.
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