What is a dynamicmonopsony?In which case we can say that a monopsonistic employer is not discriminating...

What is a dynamicmonopsony?In which case we can say that a monopsonistic employer is not discriminating among its workers?Assume a labor market with a non-discriminating monopsony. Assume the wage is 5$ when monopsony employs 100 workers. Assume wage increase to 5,1$ when 1 more worker is employed. What is the marginal labor cost of the last worker?

Expert Solution

Formally, a dynamic monopsonistic equilibrium is a Nash equilibrium solution to a dynamic wage setting game played by many employers in an environment characterized by search friction. An equilibrium is characterized by wage dispersion defined as different wages paid to identical workers. It is the strategic interaction present in the wage setting environment that contributes to wage dispersion in equilibrium. Understanding this fact is crucial for policy analysis, such as the study of the effects of a minimum wage, as well as for the development of a theory of labor market dynamics.

If a monopsony employer is paying equal wage to the workers with equal qualifications and not giving extra importance to a worker than to the other workers with same qualifications then in that case we say that the monopsony employer is not discriminating among its workers.

When 100 workers are employed, total labour costs = 100 x $5 = $500

When 1 extra worker is employed, the total labour is 101 and also the wage is increased to $5.1, so total labour costs = 101 x $5.1 = $515.1

Employing an extra worker is costing the firm in total an extra $15.1.

The marginal cost of the last labour or worker is $15.1.

Rahul Sunny answered 2 years ago

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