AP®︎ Microeconomics: Topic 5.4 Flashcards

Master key terms and definitions for Topic 5.4 of AP Microeconomics – Monopsonistic Markets to help you prep for quizzes and the AP exam.

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Term

Monopsony / Monopsonistic Labor Market

Definition

A labor market with one buyer of labor and many sellers of labor.

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Monopsony / Monopsonistic Labor Market
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A labor market with one buyer of labor and many sellers of labor.

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Characteristics of a Monopsony
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Single large employer, imperfect competition, wage-making power, and upward-sloping labor supply to the firm.

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Wage Maker
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A firm with enough buying power to influence the wage it pays workers.

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Labor Supply Curve to a Monopsonist
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An upward-sloping curve showing higher wages are needed to attract more workers.

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Marginal Revenue Product
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The additional revenue generated by employing one more unit of labor.

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Profit-Maximizing Hiring Rule in Monopsony
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Hire labor until marginal revenue product equals marginal factor cost.

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How to Find Wage and Quantity in a Monopsony Graph
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Choose labor where MRP equals MFC, then read wage from the labor supply curve.

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Monopsony Versus Competitive Labor Market
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Monopsony hires where MRP = MFC and pays from supply; competition hires where MRP = supply.

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Monopsony Outcome Relative to Competitive Labor Market
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A monopsonist hires fewer workers and pays a lower wage than a competitive labor market.

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Demand for Labor Equals MRP
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The firm's labor demand curve is its marginal revenue product curve.

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Minimum Wage in a Monopsony
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A binding wage floor can raise wages and increase employment up to the relevant labor supply quantity.

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Marginal Factor Cost in Monopsony
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The cost of one more worker, including higher wages paid to all existing workers.

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