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April 21, 2015 Profit Maximization How do you draw the labor demand curve for a monopsonist? The monopsonist simultaneously picks w* and E*, so there is no labor demand curve for a monopsonist. Comparison with Perfect Competition The firm is better off. In a monopsonistic labor market, W < VMPE Fewer people are hired than in a perfectly competitive market and wages are lower. Page 1 of 20 ECON 139 SP ‘15 Antonovics 4 4-21-15 1 This is because the marginal cost of hiring an additional worker is higher for a monopsonist than for a perfectly competitive firm. Workers worse off relative to perfectly competitive labor market. Sport Economics Monopsony in Professional Sports  Sports owners are a small and interconnected group. • Possibly can band together and act as monopsonists. • Main issue here is that the owners can set wages—that is, wages are not determined by perfect competition. • Two implications –*** The greater is a league’s monopsony power, the lower will be player salaries. – Players will be paid below their VMPE. • Note: in the reading they call the “value of the marginal product of labor” the “marginal revenue product of labor”. Page 2 of 20 Bright green words: comes out of firm surplus Black words: comes out of worker surplus Blue words: worker surplus Dark green words: firm surplus Page 19 of 20 Page 20 of 20