1) Monopsony refers to a market situation with a single buyer of a good or service, giving that buyer monopoly-like power over suppliers. 2) A monopsonist, like a monopolist, can influence the price they pay for purchases by controlling the quantity bought. 3) A monopsonist determines the quantity purchased to maximize consumer surplus, equating marginal cost and marginal utility, resulting in a lower market price than would occur under competition.

1. MONOPSONY
MUHAMMEDSUHAIBM
HEAD OF THE DEPARTMENT,
DEPARTMENT OF ECONOMICS,
KR’S SREE NARAYANA COLLEGE, THOZHUVANOOR

2. MONOPSONY
 Monopsony refers to a market situation when there is a single
buyer of a commodity or service. It applies to any situation in
which there is a ‘monopoly’ element in buying.
 For example, when consumers of a certain commodity are organised or
when a certain individual happens to have a taste for some commodity
which no one else requires, or when a single big factory in an isolated
locality is the sole buyer of some grades of labour, there is monopsony.

3. MONOPSONY
 Liebhafsky defines monopoly as “the case of a single buyer who is
not in competition with any other buyers for the output which he
seeks to purchase, and as a situation in which entry into the market
by other buyers is impossible”.
 Just as a monopolist is able to influence the price of the product by the
amount he offers for sale, similarly the monopsonist is able to influence
the supply price of his purchases by the amount he buys.

4. MONOPSONY
 The analysis of monopsony pricing is similar to that under monopoly
pricing.
 the monopolist aims at the maximisation of his profits, while the
monopsonist aims at the maximisation of his surplus.
 The monopolist equates his marginal cost with his marginal revenue to
maximise his profits
 The monopsonist regulates his purchases in such a way that marginal
cost equals marginal utility whereby his consumer’s surplus is the
maximum.

5. Price and Output Determination
 The determination of price under
monopsony is explained by this
figure.
 The supply curve of the industry is
the average cost of the monopsonist. It
is from the industry that he buys the
product. This is represented by the
curve AC/S in the figure.

6. Price and Output Determination
 MC is its corresponding marginal cost curve. MU is
the marginal utility curve of the monopsonist.
 The monopsonist equilibrium is established at E
where the marginal utility of the product to the
monopsonist equals the marginal cost.
 He buys OM quantity at OA (=MB) price which is the
supply price for that output.
 The surplus obtained by the monopsonist is the area
DEBA-the difference between what he is Prepared to
pay ODEM and what he actually pays OABM
(DEBA =ODEM-OABM).