Monopsony
~35 min · WEC13 · 3.3.3
WEC13 · 3.3.3 · 35 min
A isn't a labour-market curiosity — it's what happens to any buyer, of workers or of wheat, once it becomes the only real option its sellers have.
Key terms in this lesson
Before you read on
Two or three questions on exactly what this lesson teaches. Being wrong here is fine — it's the fastest way to find out what to pay attention to next.
Why one buyer means lower pay and fewer hires — before the algebra
In plain terms
You own the only fruit-picking job in a small town. To hire your first picker, you offer $10/hour — they take it. Word gets round, and to hire a second picker you have to offer $11/hour — but here's the part that isn't obvious: you can't pay picker 2 more than picker 1 for the identical job. Try it and picker 1 finds out, and you have a mutiny, not a workforce. So hiring picker 2 doesn't just cost you $11 — it costs you $11 for the new picker AND an extra $1/hour for picker 1, who's now on the new, higher rate too. Total cost of hiring 2 people jumped from $10 to $22 — up $12, not $11. Do this for a third picker (everyone now on $12/hour, total $36, up $14 from before) and a fourth (everyone on $13/hour, total $52, up $16). Each extra picker costs you more, in *extra* total wages, than their own wage — because their raise drags everyone else's pay up too. Now put a number on what each picker is actually worth to you — the extra fruit they pick, sold on. Picker 1 is worth $22/hour to you, picker 2 worth $21, picker 3 worth $20, picker 4 worth $19 — each one a little less useful than the last, because you're running out of trees for them to reach. Hire picker 4: costs you $16 extra, worth $19 extra — still a $3 win, do it. Try picker 5: costs you $18 extra, worth only $18 — no gain left. Stop at 4 pickers, paying $13/hour each.
Name what you were tracking. The extra total-wage-bill cost of hiring one more picker is marginal cost of labour (MC_L) — and it sits above the wage itself precisely because of the mutiny problem: raising pay for the new hire means raising it for everyone already on the payroll, not just the newcomer. The extra value a picker adds is their marginal revenue product (MRP) — what the next unit of labour is actually worth, and it falls as you hire more for the same reason it always does: diminishing returns. You kept hiring exactly as long as MC_L stayed below MRP, and stopped the moment it wouldn't — hire while MC_L < MRP, stop where they'd cross.
Formally
A monopsonist hires where MC_L = MRP (labour demand) — here, at 4 pickers, paying the wage read off the supply curve at that quantity, £13/hour. Compare that against what a competitive labour market — many employers bidding for the same pool of pickers — would produce instead: wage settles wherever supply meets demand directly, no wedge, at 7 pickers and £16/hour. Both the wage AND the headcount come out lower under monopsony, not by assumption but because MC_L crosses demand at a smaller quantity than supply does, for any pair of curves where MC_L lies above supply. The worked derivation below runs the identical mechanism through Tata Steel/Thyssenkrupp's real merger context, with different numbers but the same two forced results: below-competitive wage, below-competitive employment.
One buyer, an upward-sloping supply curve, two contexts
A is the mirror image of a monopoly, read from the buying side instead of the selling side. The real Jan 2025 mark scheme's own definition is simply: "a market condition in which there is only one buyer" — of a firm that had become the sole buyer of sugar beet from thousands of UK farmers. Nothing in that definition mentions labour, and that's the point this lesson is built around: a monopsony can be a single dominant buyer of *labour* (an employer), or a single dominant buyer of *any other input* — a raw material, a component, a service — bought from many independent sellers who have nowhere else to sell it.
Spec item 3.3.3.7(a) asks for the assumptions and conditions under which a monopsony can actually operate, and they're symmetrical with monopoly's: a single buyer (or one so dominant it behaves like one) facing many independent sellers; sellers who have no comparably good alternative buyer to switch to — because of geography, specialised skills, contractual lock-in, or simple lack of information; and, as a direct consequence of being the whole market on the buying side, the monopsonist faces the market supply curve itself, not the flat, take-it-or-leave-it price a small buyer in a competitive market would face.
That last condition is what the rest of this lesson is built on. Because the monopsonist effectively IS the market, its own average cost of buying (AC — the price or wage it pays per unit) is the upward-sloping market supply curve itself. But its ** of buying one more unit is not the same curve — it lies above it, for a reason that has nothing to do with the input being labour specifically: raising the price to attract one more unit means raising it for every unit already bought, not just the new one.
Spec item 3.3.3.7(b) then asks for the costs and benefits of this to three named groups: the firm itself, consumers, and employees — and where the monopsony is a buyer of a good rather than labour, the equivalent third group is the suppliers it buys from (farmers, for British Sugar). Missing any one of the three, or assuming 'employees' is the only possible third group even on a goods-market question, is exactly the gap the trap-taxonomy below is built to catch.
Mechanism
Why an examiner is checking for the wedge, not just the direction
The three-stage process an examiner actually runs on a monopsony answer: what they read first is whether you've stated the mechanism — marginal cost of the input lying above average cost — rather than just asserting 'a monopsony pays less.' What they're looking for next is whether you've applied it to BOTH sides of spec item 7(b): not just the firm's own gain, but what happens to consumers, and to whichever group actually sold the input — employees for a labour monopsony, suppliers for a goods one. The real Jan 2025 mark scheme caps a response at Level 3 "if only one economic agent is discussed," a completely independent gate from the diagram requirement, which caps at Level 3 on its own if no diagram is drawn. What would change the decision, finally, is whether the conclusion is conditional: 'monopsony always harms suppliers' scores differently from a version that names when it doesn't — when suppliers can organise into a bilateral monopoly, or when competitive pressure forces the cost saving through to consumers instead of being kept as profit. None of this is topic-specific caution; it's the same three-part check that gates every WEC13 essay this course has verified, applied here to a spec item narrow enough that it's tempting to think a one-line definition is the whole answer.
Worked, in full
Deriving the below-competitive wage — not asserting it (Tata Steel / Thyssenkrupp, buyer of labour)
- 01
Assume Tata Steel and Thyssenkrupp, newly merged, are the only substantial buyer of a particular grade of steelworking labour in a region. To hire one more worker they must raise the wage they pay — and because paying different wages for the same job is unworkable, that higher wage goes to every worker already employed, not just the new hire. Suppose the market labour supply curve is w = 8 + 2L, where w is the wage in £/hour and L is thousands of workers hired: a genuine assumption stated as a number, not smuggled into the algebra.
Earns: K — the assumption (a single dominant buyer facing an upward-sloping supply curve) stated explicitly and given a concrete functional form, not left implicit.
- 02
Total labour cost is TLC = w(L) × L = (8+2L)L = 8L + 2L². Marginal cost of labour is MC_L = ΔTLC/ΔL, which differentiates to MC_L = 8 + 4L — the same shape-shift as MR falling away from AR in the Business Objectives derivation, but for a rising cost curve instead of a falling revenue one: same intercept (8), double the gradient.
Earns: An1 — the substitution and differentiation shown as explicit steps, mirroring the earlier AR/MR-style derivation rather than asserting the shape by analogy.
- 03
If this were a competitive labour market instead — many employers bidding for the same pool of workers — the wage would settle wherever supply meets demand. Suppose demand for this labour (its marginal revenue product) is w = 32 − 2L. Competitive equilibrium: 8+2L = 32−2L, giving L = 6 (thousand workers) and w = £20/hour.
Earns: An2 — the competitive benchmark derived from the same two curves, giving a real number to compare the monopsony outcome against rather than an abstract 'lower than it would otherwise be'.
- 04
The monopsonist doesn't hire where supply meets demand — it hires where its OWN marginal cost meets demand: MC_L = D gives 8+4L = 32−2L, so L = 4 (thousand workers). The wage it actually pays is read off the supply curve at that quantity, not off MC_L: w = 8+2(4) = £16/hour. Both numbers came out lower than competitive — 4,000 workers vs 6,000, £16 vs £20 — not by assumption, but because MC_L crosses demand at a smaller quantity than supply does, for any curves where MC_L lies above supply.
Earns: Eval — the below-competitive wage AND below-competitive employment both derived as forced consequences of the same two equations, with real numbers stated rather than left as an unquantified direction.
Source — Mark scheme, Jan 2021
"...would become a monopsony employer of steel workers in the UK and the Netherlands... employees expected job losses and lower real wages if the merged company's monopsony strength grew."
x-axis: Quantity of the input bought or hired, Q · y-axis: Price or wage paid per unit of the input, £
- S = AC
- Upward-sloping market supply curve for the input — the only supply curve there is, since the monopsonist is (or dominates) the whole buying side. Because every unit is paid the same price, this is also the monopsonist's own average cost curve.
- MC
- Marginal cost of the input, above S=AC and rising twice as steeply — derived above for both the labour case (Tata Steel) and the goods case (British Sugar, below) from the same algebra, not assumed by convention.
- D
- Demand for the input — its marginal revenue product if it's labour, or the value it adds to the buyer's own output if it's a physical input. Downward-sloping.
- Pc, Qc
- The competitive price and quantity — where S(=AC) meets D. What a market with many buyers, not one, would produce.
- Pm, Qm
- The monopsony equilibrium. Qm is found where MC meets D; the price actually paid, Pm, is then read straight down onto the S=AC curve at that quantity — not off MC. Pm < Pc and Qm < Qc.
Common error: Assuming the gap the monopsonist captures — (Pc−Pm)×Qm — automatically becomes a lower price for the monopsonist's own customers too.
Correct: That gap is a transfer from the seller (farmer, worker) to the monopsonist. Whether it then reaches the monopsonist's own customers as a lower price, or stays with the firm as extra profit, is a separate and genuinely uncertain step — the real Jan 2025 mark scheme's own evaluative point is exactly this risk, stated in full: British Sugar "may not pass on the cost savings to its customers. If it is the only seller of sugar it might increase the price" — a monopsonist that also holds selling-side market power isn't just withholding a saving, it can push the price its own customers pay UP above where it started, a stronger and distinct claim from merely 'stays with the firm as profit'.
In your own words
In one sentence: why does a monopsonist read the price or wage it actually pays off the supply curve S, rather than off the marginal cost curve MC it used to decide how much to buy?
Complete it yourself
Complete the chain — deriving the marginal cost of purchasing an input (British Sugar buying sugar beet)
- 01
British Sugar is, in effect, the only substantial buyer of sugar beet from UK farmers — to buy more beet in a season, it must offer a higher price per tonne, and that higher price goes to every tonne bought, not just the marginal one. Suppose the supply curve for beet is P = a + bQ, where Q is thousands of tonnes.
- 02
Total cost of buying Q tonnes is TC(Q) = P(Q) × Q = (a+bQ)Q = aQ + bQ² — the identical substitution used for the labour case above, with price-per-tonne standing in for the wage.
x-axis: Output of the firm's OWN product, Q · y-axis: Price and cost of the firm's OWN product, £
- AR = D
- Demand for the monopsonist's own output — a completely separate market, with its own axes, from the input market diagrammed above.
- MR
- Below AR, same intercept, twice the gradient — the standard relationship, not a new one.
- AC1
- Average cost of the firm's own output BEFORE the monopsony input-price saving.
- MC1
- Marginal cost BEFORE the saving, crossing AC1 exactly at AC1's minimum.
- AC2
- Average cost AFTER the saving — the whole curve shifts down, since a cheaper input lowers cost at every output, not just one.
- MC2
- Marginal cost AFTER the saving, shifted down with AC2 and crossing it at the same output.
- Q1, P1
- Original profit-maximising output/price, where MC1=MR — supernormal profit here is the SMALLER of the two shaded rectangles.
- Q2, P2
- New profit-maximising output/price after the input-cost saving, where MC2=MR — output rises slightly, price the firm's own customers pay actually falls slightly (64→60), and supernormal profit is the LARGER shaded rectangle, since the cost fall outweighs the small price fall.
Common error: Drawing only the input-market diagram above (S=AC of the input, MC of the input, D) and treating it as the whole answer — even though the real Jan 2025 question asks students to "illustrate your answer with an appropriate diagram(s)", plural, and the mark scheme separately credits THIS diagram.
Correct: The input-market diagram shows WHY the price paid to farmers falls; this one shows the CONSEQUENCE — the input-cost saving shifts the firm's OWN cost curves down (MC1→MC2, AC1→AC2), widening its supernormal-profit rectangle. The real Jan 2025 examiner report confirms this is the diagram most candidates actually drew for this question, not the input-market one: "Many drew a diagram to show the impact on profit." For the conditional consumer-benefit bullet specifically, the identical shifted curves can instead be read as lowering the firm's own price and raising consumer surplus on this same AR/MR diagram — the real mark scheme's own labelling for that version marks the before/after consumer-surplus areas 'GAP1' and 'GEP1'.
Named traps
- monopsony-is-not-monopoly
- Confirmed in the Jan 2025 examiner report, on the real British Sugar question: "Some learners confused monopsony with monopolist." The two are mirror images, not synonyms — a monopoly is a single SELLER facing many buyers (price above marginal cost, output restricted); a monopsony is a single BUYER facing many sellers (price paid below the competitive level, quantity bought restricted). Getting which side of the market holds the power backwards derails the entire answer, not just one sentence of it.
- not-just-a-labour-market-concept
- The same Jan 2025 report, on the same British Sugar question — a buyer-of-goods monopsony, with no employees mentioned in the stem at all — records: "others focused on monopsony employers but this needed to focus on how this would effect the firms and consumers." A real, confirmed pattern of candidates defaulting to the labour-market version of monopsony even when the question was explicitly about a firm buying a physical input from independent suppliers. Monopsony is a buying-power concept first; labour is the most commonly taught example of it, not the definition.
- define-without-developing
- Confirmed in the Jan 2021 examiner report, on the Tata Steel monopsony-definition question: "Many students could define monopsony correctly, but some did not secure both knowledge marks because they did not expand their definition to provide additional information for the second knowledge mark." The mark scheme's own structure makes the two-part shape explicit — 1 mark for the bare definition (only one buyer of labour in the market), PLUS a separate mark for development (that this buyer has bargaining power it can use to negotiate lower wages). Stopping after the first sentence leaves a mark unclaimed.
- diagram-and-both-agents-or-capped-at-level-3
- Verified in the Jan 2025 mark scheme, as two SEPARATE caps on the same essay: "A candidate can achieve a maximum of level 3 if no diagram" and, independently, "A candidate can achieve a maximum of level 3 if only one economic agent is discussed." The examiner report on this exact question confirms most candidates covered firms in real depth but shortchanged the other side — "few looked at benefits to the growers" — and rarely widened past British Sugar itself, with "few looking at other monopsonists." Satisfying only one gate (diagram present, but only one agent covered) isn't enough — both are checked independently.
- input-diagram-is-not-the-only-diagram
- The real Jan 2025 question asks for an "appropriate diagram(s)" — plural, not singular — and the input-market diagram this topic is usually taught with isn't the one the real examiner report says most candidates actually drew: "Many drew a diagram to show the impact on profit." That's the firm's own output-market diagram above — the input-cost saving shifting its MC and AC curves down, widening its supernormal-profit rectangle. On 'benefits of a monopsony to firms and consumers,' the profit diagram does more work than the input-market one alone: it directly shows the firm-side benefit AND sets up the conditional consumer-surplus argument on the same axes, rather than leaving both to be asserted in prose.
- unconditional-conclusion
- "Monopsony power is always harmful to the people it buys from" is an unconditional claim. Every WEC13 evaluation mark scheme checked this session tops out short of the highest evaluation band without a stated condition — and the real evaluative content on this exact question supplies the condition directly: sellers keep counter-leverage only if they can act together (see the conditional-judgement drill below). State the condition in the same sentence as the conclusion, not as an afterthought.
The conditional move
Complete: "A monopsony's lower input costs are likely to reach consumers as lower prices only if ___."
Complete: "A monopsony's below-competitive price or wage is only a lasting outcome if ___."
| Stakeholder | Costs | Benefits |
|---|---|---|
| Firm |
|
|
| Consumers |
|
|
| Employees / suppliers |
|
|
Common error: Discussing only one of the three named groups (most often just the firm's own gain) — the real Jan 2025 mark scheme caps this at Level 3 as a SEPARATE gate from the diagram requirement, so a correct diagram with only one agent discussed still doesn't clear the top band.
Correct: All three groups addressed — the firm, consumers, AND employees/suppliers — independently of the diagram, since both gates are checked on their own terms rather than one excusing the other.
Beyond the spec
The spec doesn't name a single economist for monopsony, and the two contexts it actually examines (British Sugar, Tata Steel) both look like the textbook special case — a literal sole buyer. The modern economics of monopsony argues the special case is far more common than the textbook picture suggests, which is exactly the kind of scope-widening point a Level 4 evaluation needs and a bare one-line definition can't supply on its own.
The term itself is younger than most of this course's vocabulary: Joan Robinson coined "monopsony" in The Economics of Imperfect Competition (1933) — a mirror-image companion to "monopoly" she built to make the buyer-side case as rigorously as the standard textbook already made the seller-side one, reportedly borrowing the coinage itself from a classicist colleague, B. L. Hallward, who suggested the Greek root for 'single buying' the way 'monopoly' uses the root for 'single selling.' For most of the twentieth century the textbook case stayed close to Robinson's own — a literal single employer, the one mill in a one-mill town. The economist Alan Manning's Monopsony in Motion (2003) is the modern challenge to that picture: search costs, switching costs, and imperfect information about outside offers give an employer real wage-setting power even in a market with dozens of nominal competitors, because a worker rarely actually compares all of them before accepting a job. A growing empirical literature on labour-market concentration since has found measurable monopsony-style wage effects in ordinary, competitive-looking industries, not only the textbook one-employer town. For an exam that only ever gives you the clean, single-buyer case, that's the evaluative point the clean case can't make on its own: the theory's real-world reach is wider than its two verified exam contexts suggest, and 'this market has several employers' is not, by itself, a safe argument that monopsony power is absent from it.
Retrieval — with feedback on every choice
A monopsony employer is currently hiring at the point where its marginal cost of labour equals the demand for labour (MRP). Compared to a competitive labour market with many employers, what does this do to the wage rate and the level of employment?
Why does a monopsonist's marginal cost of purchasing an input lie above the price it actually pays per unit (the supply curve), rather than equal to it?
Which of the following is a correct statement about monopsony?
A firm buying sugar beet from independent farmers faces the supply schedule below. As it buys more beet in a season, it must offer a higher price per tonne to every farmer it buys from, not just the newest supplier. Quantity bought (000 tonnes): 10 | 11 | 12 | 13 | 14 Price paid per tonne (£): 30 | 31 | 32 | 33 | 34 Total cost of beet bought (£000s): 300 | 341 | 384 | 429 | 476
Using the table, what is the marginal cost of the 1,000 tonnes bought between 12,000 and 13,000 tonnes, and how does it compare to the £33 average price the firm pays per tonne at that quantity? (VERIDIAN-original — same calculation type as the real, verified marginal-cost-from-a-table questions this paper sets, not a reproduction of one.)
Same question, every level
Evaluate the view that the effects of monopsony power on the people who supply a firm are essentially the same whether that firm is buying labour or buying a physical input. Illustrate your answer with an appropriate diagram(s). (VERIDIAN-original question, written in the style confirmed across the WEC13 series that examine monopsony — not a reproduction of any single past-paper question.)
20 marks available
A monopsony is a firm that has a lot of power over the people it buys from. This is true whether it is buying workers or buying materials, because in both cases the firm can pay less than it should.
Asserts the equivalence without demonstrating it — no formula, no diagram, and no definition of what 'less than it should' actually means (below the competitive price, not below some other benchmark).
- Monopsony = one dominant buyer facing many sellers, of labour OR any input — not a monopoly (one seller).
- S=AC of the input; MC lies above it, twice the gradient — buying more raises the price paid to every unit already bought.
- Profit-max buyer: MC=D sets quantity. Read the price/wage paid off S, not MC — always below the competitive level.
- Costs/benefits cover THREE groups: firm, consumers, employees/suppliers. Missing one, or no diagram, caps Level 3.
- Cost savings reach consumers only if passed on — the mark scheme default is that they may not be.
- 'Diagram(s)' is plural on the real question: the input-market diagram shows why the price paid falls; a second diagram — the firm's own MC1→MC2/AC1→AC2 shift, widening supernormal profit — shows the consequence, and is what most real candidates actually drew.
- Guaranteed, stable demand is the specific benefit to farmers/suppliers most candidates miss — don't stop at 'reduced bargaining power' as if that were the whole picture.
Not affiliated with or endorsed by Pearson Edexcel. Every quotation and figure attributed to a mark scheme, question paper or examiner report in this lesson was independently verified against the primary Pearson document, not carried over from prior course material. Every one of those citations was specifically re-verified this session against the primary Pearson PDF — the Jan 2021 and Jan 2025 WEC13 mark schemes, question papers and examiner reports — rather than carried over from the facts bank without a fresh check.
A monopsony employer is currently hiring at the point where its marginal cost of labour equals the demand for labour (MRP). Compared to a competitive labour market with many employers, what does this do to the wage rate and the level of employment?
- Both the wage and employment are lower than the competitive level
Correct — this is the derived result from the worked chain above: MC_L crosses demand at a smaller quantity than supply would, and the wage actually paid, read off supply at that smaller quantity, is below the competitive wage too.
- BThe wage is lower, but employment is higher
Employment is also below the competitive level, not above it — a monopsonist restricts both variables together, for the same underlying reason (MC_L above supply).
- CBoth the wage and employment are higher than the competitive level
This is the wrong direction on both counts — monopsony power restricts what's paid and how much is bought, it doesn't increase either.
- DThe wage is lower, but employment is unaffected, since the monopsonist just pays its existing workforce less
Monopsony changes how many workers get hired in the first place, not just what a fixed workforce is paid — profit-maximising hiring genuinely stops at a smaller quantity, because MC_L rises above demand before the competitive quantity is reached.
Traps tested: Direction reversed · Ignores quantity restriction
Why does a monopsonist's marginal cost of purchasing an input lie above the price it actually pays per unit (the supply curve), rather than equal to it?
- Because paying a higher price to attract one more unit means paying that same higher price to every earlier unit too, not just the newest one
Correct — this is the mechanism derived algebraically for both the labour case and the goods case above: a single price applies to every unit bought, so raising it for the marginal unit raises the total cost by more than just that unit's price.
- BBecause the monopsonist has to pay transport and storage costs on top of the purchase price
This describes a real but unrelated cost — it has nothing to do with why MC lies above AC specifically for a monopsonist. The mechanism is about the shape of the supply curve, not about logistics costs.
- CBecause government regulation adds a tax to each additional unit bought
No such tax is assumed anywhere in the monopsony model — the wedge between MC and AC comes purely from the upward-sloping supply curve, not from any government intervention.
- DBecause suppliers charge new buyers a higher price than existing ones
This describes price discrimination by SELLERS against different buyers — the opposite direction from what's happening here, where a single buyer pays the same price to every seller and that price rises as it buys more.
Traps tested: Wrong concept entirely · Reverses the mechanism
Which of the following is a correct statement about monopsony?
- AA monopsony is a market with a single seller facing many buyers
This describes a monopoly, not a monopsony — the two are mirror images on opposite sides of the market, and this is the exact confusion the Jan 2025 examiner report flags.
- BA monopsony can only exist in a labour market, where a firm is the sole employer
This is the misconception the lesson is built to correct — monopsony is defined by market position (single dominant buyer, upward-sloping supply curve), not by what's being bought. British Sugar, buying sugar beet, is a verified real monopsony that has nothing to do with labour.
- A monopsony is a market with a single (or dominant) buyer facing many sellers — of labour, or of any other good or input
Correct — this is the general definition, matching the real Jan 2025 mark scheme's own wording almost exactly: 'a market condition in which there is only one buyer'.
- DA monopsony always leads to higher prices paid to sellers, because the buyer wants to guarantee future supply
The opposite is true — monopsony power pushes the price or wage paid DOWN below the competitive level, precisely because the buyer has the market power to do so.
Traps tested: Monopsony monopoly confusion · Labour only misconception · Direction reversed
A firm buying sugar beet from independent farmers faces the supply schedule below. As it buys more beet in a season, it must offer a higher price per tonne to every farmer it buys from, not just the newest supplier. Quantity bought (000 tonnes): 10 | 11 | 12 | 13 | 14 Price paid per tonne (£): 30 | 31 | 32 | 33 | 34 Total cost of beet bought (£000s): 300 | 341 | 384 | 429 | 476
Using the table, what is the marginal cost of the 1,000 tonnes bought between 12,000 and 13,000 tonnes, and how does it compare to the £33 average price the firm pays per tonne at that quantity? (VERIDIAN-original — same calculation type as the real, verified marginal-cost-from-a-table questions this paper sets, not a reproduction of one.)
- £45,000 for that batch — £45 per tonne, above the £33-per-tonne average price, which is exactly the wedge that defines a monopsony buyer's marginal cost of purchasing
Correct. Total cost rises from £384,000 at 12,000 tonnes to £429,000 at 13,000 tonnes — a marginal cost of £45,000 for that 1,000 tonnes, i.e. £45 per tonne, above the £33-per-tonne average price paid at that quantity. This is the numeric version of the algebraic result derived in the chain-drill above: MC lies above AC=S for a monopsony buyer.
- B£33,000 — the same as the average price paid, because marginal cost and average cost are identical for a monopsonist
This is the opposite of what defines a monopsonist — MC and AC being identical is what happens for a small, price-taking buyer in a COMPETITIVE market. The whole reason British Sugar is a monopsony is that its MC of buying lies above its AC.
- C£429,000 — the total cost of all 13,000 tonnes bought, not just the marginal 1,000
This is total cost, not marginal cost — the question asks for the cost of the ADDITIONAL 1,000 tonnes specifically, which means subtracting the total cost at 12,000 tonnes first.
- D£43,000 — this is the marginal cost of the previous 1,000 tonnes (11,000 to 12,000), not the 12,000-to-13,000 interval the question asks about
£43,000 is a real number in the table, but it's the marginal cost one interval too early. Check exactly which two total-cost figures the question is asking you to subtract before reading off an answer.
Traps tested: Assumes mc equals ac · Computed total not marginal · Off by one interval
Practice this for real
This site teaches the mechanism; the exam is sat on Pearson's own real questions. Go find and attempt these yourself — nothing here substitutes for actually sitting a timed paper.
- Mark scheme
- Jan 2021 · Q7 — cited directly in this lesson
Select International Advanced Level → Economics → any series, then look for WEC13.
Up next
Labour Markets
A firm's demand for labour isn't really about the worker at all — it's derived entirely from demand for whatever that worker helps produce, and a profit-maximising firm hires until marginal revenue product falls to the wage. That's the whole story only while the employer is one of many bidding for the same workers; once it's the only one, monopsony changes who actually sets the wage.
40 min