Monopsony

Abstract

THE principle underlying the analysis of the decisions of a buyer as to how much of a commodity to buy is that he will equate marginal utility to marginal cost. As we have seen, this statement is no more than a tautology. If the supply of the commodity to him is perfectly elastic he will equate marginal utility to price. This will occur, first, if he is one of a large number of buyers, so that a change in his purchases has a negligible effect upon the total output of the commodity, and consequently a negligible effect upon its price; or, second, if the commodity is sold under conditions of constant supply price, so that even if a change in his purchases produces a significant change in output it causes no change in price.