Relationship of Monopsony and Monopoly to Perfect Competition

Abstract

THE principle of monopsony of factors of production is to some extent latent in the analysis of monopoly. Under increasing cost the monopolist takes into account the whole increment to the costs of the industry as the output of his commodity increases, which is the same thing as to say that he takes into account the fact that when he increases his purchases of one or other of the factors of production he raises the supply price of the factor against himself. Under decreasing cost he takes into account the whole of the economies induced by each increase in output; that is to say, he takes into account the fact that when he increases his purchases of one or other of the factors its efficiency is increased and its efficiency cost lowered.