Here, we understand about what is monopsonistic exploitation with figure in detailed.
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Monopsonistic Exploitation is also one of the type of Exploitation of labour. Exploitation of labour occurs when there is imperfect competition in the factor market. In this, supply curve of labour is upward sloping. It indicates marginal cost of labour is greater than average cost of labour that is wage rate. Marginal cost curve of labour lies above average cost curve of labour. Here, a profit maximising firm will be in equilibrium at point where marginal revenue product of labour is equal to marginal cost of labour. Wage rate will be less than marginal revenue product of labour. It is known as 'monopsonistic exploitation of labour.' It should noted that, wage rate is less not only compared to VMP but as compared to MRP.
As shown in above figure, OC labour is employed at point A, where marginal cost of labour (MW) is equal to marginal revenue product of labour (MRP). Wage rate is BC. It indicates wage rate is less than marginal revenue product by AB. The wage rate (BC) is less than VMP (EC) by EB which clearly indicates the magnitude of exploitation. As shown in figure, the equilibrium of monopolist and monopsonistic firm at point A, the wage rate is BC and labour employed is OC.
It shows that the wage rate BC is not only less than the marginal revenue product AC but also less the value of marginal product EC.
The difference AB between marginal revenue product and wage rate is due to the existence of monopsony in labour market to which Professor Joan Robinson refers as 'Monopsonistic Exploitation.'
On other side, the difference EA between the value of marginal product and the marginal revenue product is due to the existence of monopoly in the product market.
It clearly indicates, under monopoly-monopsony market situation, there is double exploitation of labour, because monopoly labour gets less than the value of his marginal physical product and because of monopsony, it gets less than its marginal revenue product.
Monopsonistic exploitation of labour is concerned, the Government or the trade unions plays vital role to remove such exploitation by raising wages.
Short forms used-
VMP = Value of marginal product.
MRP = Marginal revenue product.
Exploitation of Labour
Marginal Revenue Product
Value Marginal Product.
Exploitation of Labour - Monopsonistic Exploitation.
Tech writer at NewsandStory