AP Microeconomics / Factor Markets
Lesson
When one buyer sets the wage
A monopsony faces an upward-sloping labor supply curve and a steeper marginal labor cost.
Learning goals
- Contrast a competitive wage-taker with a single major employer.
- Explain why monopsony employment is typically lower than the competitive level.
Explanation
A competitive employer can hire as many workers as it wants at the market wage. A monopsony is a major buyer of labor in a market, so hiring more people means bidding the wage up for workers already employed. Marginal factor cost then sits above the supply curve.
The monopsonist hires where MRP meets that higher marginal factor cost, then reads the wage from the supply curve. Employment is lower and the wage is lower than in a competitive benchmark. The graph is the claim; the label “unfair” is not the model.
Key terms
- Monopsony. A market with a single or dominant buyer of an input.
- Marginal factor cost. The additional cost of hiring one more unit of an input.
Common mistakes
- Using the competitive hiring rule on a monopsony graph.
- Reading the monopsony wage from the MRP curve instead of labor supply.
Practice
Original Marlow Works items. Check the answer explanation after you try.
A binding price ceiling is set below equilibrium in the market for rental apartments. What is the most likely result?
Original Marlow Works item — not a College Board question.
Take your time—this is practice, not a test.
Answer explanation
On a monopsony graph, where is the wage of the hired workers found?
Answer. On the labor supply curve at the employment level where MRP equals marginal factor cost.
MFC chooses quantity. Supply says the wage needed to attract that quantity.
Related resources
External links with reuse status. Marlow Works is independent and does not copy restricted exam or textbook material.
Official / link only
AP Microeconomics course page
Official six-unit framework for markets, costs, and market failure.
College Board · All rights reserved · accessed 2026-10-01
Open sourceCC BY — attribution required
Principles of Microeconomics: Scarcity and Social Provisioning
Open microeconomics background for scarcity, markets, and elasticity.
Open Textbook Library listing · CC BY · accessed 2026-10-01
Open source