Monopsony

We can divide the word “Monopsony” by “Mono” and “psony” which means Single Buyer.

The basic graph of it could be this, which consists of $w^s$ (stands for supply side) and $MR{P}_L$ (stands for demand side) , and $MR{P}_L$ stands for “Marginal Revenue Product of Labor”

$E_0$ stands for the situation that when the market is in the Perfect Competition

And the Monopsony is to maximize the profit of this single buyer will hire $L$ until marginal revenue of hiring the last unit of $L=MC$ of hiring the last unit of $L$

The $MR$ of hiring the last unit of $L$ would be $MR{P}_L=P\frac{\delta F}{\delta L}$ (recall )

However, the $MC$ of hiring the last unit of $L$ may not be $w$ (the wage rate of the $L$) See this Why the MC of hiring the last unit of L may not be w

And the difference value between $w_3$ to $w_p$ is called the monopsonistic exploitatin

Key point: finding the equilibrium value

So how to find the equilibrium value under the Monopsony situation? So first, you need to find the $M{C}_L$ curve.

$$M{C}_L=\frac{\delta TC}{\delta L}$$

And the most important thing is that you need to find the equilibrium point in the $w_s$ curve, since the Monopsony is the buyer, and you need to try your best to minimize your cost (spending). For further explanation, please see The Mathematical Model of Monopsony