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Chapter 27 63
Chapter 27
Factor Markets
I added this chapter in order to discuss some of the problems with imperfect
competition in factor markets. There are three topics: a monopolist’s demand
for a factor, monopsony, and vertically integrated monopolies.
The monopolist’s demand is a snap if the students know a little calculus. If
they don’t, you have to talk your way through it. I’m not sure that this topic
really deserves much emphasis if the students don’t have the math to handle it.
The section on monopsony is pretty standard; the minimum wage example is
useful. You might talk some about the situation in professional sports, to show
students that there are real-life examples of monopsonies.
I’m very fond of the integrated monopoly example. The fact that the
integrated monopoly has a lower price is surprising. It shows that in antitrust,
sometimes the cure is worse than the disease!
Factor Markets
A. Monopoly in output market
1. marginal product, MPx
2. marginal revenue, MRy
B. Monopoly/monoposony in input market
1. market power by demander of factor
2. maximize pf(x)−w(x)x
64 Chapter Highlights
C. Upstream and downstream monopoly
1. one monopolist produces a factor that he sells to another monopolist
2. suppose that one unit of the input produces one unit of output in
downstream monopolist
