Profit-maximizing hiring and monopsony

Learning objectives

Apply the rule that a firm hires a factor up to the point where marginal revenue product equals marginal factor cost (the wage, for a competitive employer)

Use the least-cost rule (MPL/PL = MPK/PK) to choose the cost-minimizing combination of labor and capital, and extend it to the profit-maximizing condition that MRP divided by price equals 1 for every input

Describe a monopsony as a single buyer of labor whose marginal factor cost lies above the upward-sloping labor supply curve

Draw the monopsony diagram, find employment where MRP = MFC and show that the wage paid (read from the supply curve) and employment are both lower than in a competitive market

Analyze how a minimum wage set between the monopsony wage and the competitive wage can raise both wages and employment