the appropriate concept is the marginal revenue product, which we define as the marginal product of labor

multiplied by the firm’s marginal revenue. Profit maximizing firms employ labor up to the point where the

market wage is equal to the firm’s demand for labor. In a competitive labor market, we determine market wage

through the interaction between the market supply and market demand for labor.

14.2 Wages and Employment in an Imperfectly Competitive Labor Market

A monopsony is the sole employer in a labor market. The monopsony can pay any wage it chooses, subject to

the market supply of labor. This means that if the monopsony offers too low a wage, they may not find enough

workers willing to work for them. Since to obtain more workers, they must offer a higher wage, the marginal

cost of additional labor is greater than the wage. To maximize profits, a monopsonist will hire workers up to the
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