A monopsony occurs when there is only a single buyer in a market. In a labour market, a monopsonist is the sole employer, which gives the company significant power to set wages instead of just accepting the market rate.

Key characteristics of a monopsony:

• The firm faces an upward-sloping labour supply curve, meaning it must offer higher wages to attract more workers.
• The firm hires workers where the Marginal Revenue Product (MRP) equals the Marginal Cost of Labour (MCL).
• The wage paid to workers is lower than their MRP.
• The total number of people employed is lower than it would be in a perfectly competitive market.

Main implications:

• Workers are paid less than the value they contribute to the company’s revenue.
• Total employment levels are below the ideal social optimum.
• Trade unions can act as a counterbalance to help workers negotiate for higher wages.

Ultimately, a monopsonist uses its market power to pay wages that are below the value of the workers’ output to maximize company profits.