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GOVERNMENT SECURITY: A financial instrument used by the federal government to borrow money. Government securities are issued by the U.S. Treasury to cover the federal government's budget deficit. Much like consumers who borrow money from banks to finance the purchase of a house or car, the federal government borrows money to finance some of its expenditures. These securities include small denomination ($25, $50, or $100), nonnegotiable Series EE savings bonds purchased by consumers. The really serious money, however, is borrowed using larger denomination securities ($100,000 or more) purchased by banks, corporations, foreign governments, and others with large sums of money to lend.

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Lesson 23: Factor Market Equilibrium | Unit 4: Monopsony Page: 17 of 24

Topic: Employment <=PAGE BACK | PAGE NEXT=>

  • The labor employment decision:

  • A firm maximizes profit when the additional cost of a decision is equal to the additional revenue, whether that decision is producing output or employing factor services.

  • The critical conclusion from this analysis is that a monopsony employs a factor such that marginal revenue product (MRP) is equal to marginal factor cost (MFC).

  • MRP = MFC
  • However, because this marginal factor cost (MFC) is greater than factor price (W) for monopsony, we have the secondary result that:

  • MRP > W
  • In other words, a perfectly competitive firm will hire workers up to the point where the extra revenue generated by the last worker is greater than the wage paid.


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PRIVATE SECTOR

The combination of households and businesses into a single group. It is termed the private sector to indicate that decisions are made by private individuals (either consumers or producers) in pursuit of their personal self-interests. The contrasting phrase is public sector, in which decisions are made by governments on behalf of the public.

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