EC120 Lecture Notes - Lecture 20: Monopsony, Sunk Costs, Outsourcing

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14 Nov 2018
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Profit maximizing factor use for a monopsonist: (p=) Unions and minimum wages in competitive labour markets: In competitive labour markets the effects of unions and minimum wages is to cause . Mfc to rise because mfc = wage. Employment to fall because mfc has risen. Unemployment which a union can avoid by restricting entry into a profession. Case 1: if the union/minimum wage is between the monopsony wage and the competitive wage then . Mfc falls because employer does not need to raise wage to attract new workers. Case 2: if the union/minimum wage is above the competitive wage then . Case 2b: minimum wage = 6. 50 wm wm x l. Monopsonist who faces a union/minimum wage: (p = . Evidence of effects of unions and minimum wages: Higher wages: union wage premium is 10%-15% Reduced investment due to hold-up: some evidence.

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