Answer to Question #316636 in Microeconomics for pamela

Question

Use two diagrams (draw the diagrams) that can be used to compare a

monopsony and a monopoly. Discuss and explain the diagrams that you

use. (10)

Answer 1

a) Monopoly

A single seller controls or dominates the supply of goods and services. It is a price setter In its product market. The marginal consequence is encountered in selling an additional unit, which generates marginal revenue MR, which is less than the product price. Price is determined by the point on the demand curve D, which corresponds to the profit-maximizing quantity of profit.MR equals marginal cost MC-Q.

b). Monopsony

A single buyer controls or dominates the demand for goods and services. Monopsony is a price setter in its factor market. Using an additional unit generates marginal factor cost MFC, which is greater than factor price. Price is determined by the point on the supply curve that corresponds to the profit-maximizing quantity of the market factor.MRP equals MFC- FQ.