Consider the other case, suppose the firm decides to hire fewer than NM workers, say NL. If it does this it forgoes hiring workers who contribute less to costs than they do to revenue. Increasing hiring from NL up to NM would increase profits by an amount equal to the green shaded area because the added costs of these workers is below their added revenue.

    We've shown that hiring fewer than NM means needlessly giving up profits and hiring more means incurring unnecessary losses. Thus, the profit maximizing monopsonist will hire exactly NM workers.

Copyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved