A monopsonist has MRC above labor supply

Hiring another worker raises the wage paid on existing units in the simple model.

The labor-supply curve shows the wage needed to attract each employment level. Marginal resource cost includes the new worker’s wage plus added wage paid to existing workers, so MRC lies above supply. The monopsonist hires where MRP equals MRC, then reads the wage from labor supply. It does not pay the MRC value as wage.

Employment first, wage second

MRP meets MRC at 40 workers. Labor supply shows 40 workers accept $18 per hour while MRC is $24. The firm hires 40 and pays $18. Competitive employment would occur where MRP meets labor supply, with a higher wage and employment.

A monopsonist is a buyer with wage-setting power in a factor market. To attract more labor along an upward-sloping supply curve, it must offer a higher wage. In the simple uniform-wage model, that higher wage applies to existing workers too, making the added cost of the next worker exceed the wage paid to that worker.

Suppose four workers can be hired at $15 each and five require $17. Total labor cost rises from 4(15)=$60 to 5(17)=$85. The fifth worker’s MRC is $25, not $17, because the firm pays the new worker $17 plus $2 more to each of four existing workers.

The monopsonist chooses employment where MRP meets MRC, then moves down to labor supply to find the wage required for that employment. Paying the MRC value would confuse added total cost with the per-worker wage, just as charging monopoly MR would confuse marginal revenue with demand price.

Compare with competition

MRP meets MRC at 40 workers, and labor supply gives a wage of $18 there. MRP meets labor supply at 55 workers and $22. The monopsonist hires fewer workers and pays a lower wage than the competitive benchmark in the standard model.

Buyer power can arise from geographic isolation, specialized skills useful to few employers, switching costs, employer concentration, or contractual frictions. One employer need not literally be the only buyer. Monopsony power is a degree, just as monopoly power is.

A wage increase imposed on the monopsonist can change MRC in a nonstandard way. Up to the quantity workers supply at the legal wage, the firm can hire without raising pay on earlier workers, which helps explain why a moderate minimum wage can raise employment. The ordinary competitive floor result cannot be transferred without checking structure.

Product demand or worker productivity shifts MRP and changes both employment and the wage read from supply. A fixed cost unrelated to hiring lowers profit but does not shift MRP or MRC and therefore does not change the monopsony employment decision.

The vertical gap between MRC and labor supply is not profit or a tax. It reflects the extra wage cost imposed on earlier workers when the firm expands employment along an upward-sloping supply curve. At the chosen employment, the firm pays the supply-curve wage, not the higher MRC value used in the hiring comparison.