Some firms may have to pay a higher wage in order to employ more workers. Think of Hydro Quebec building a dam in Northern Quebec. Not every hydraulic engineer would be equally happy working there as in Montreal. Some engineers may demand only a small wage premium to work in the North, but others will demand a high premium. If so, Hydro Quebec must pay a higher wage to attract more workers - it faces an upward sloping supply of labour curve. Hydro Quebec is the sole buyer in this particular market and is called a monopsonist – a single buyer. But our general optimizing principle still holds, even if we have different names for the various functions: hire any factor of production up to the point where the cost of an additional unit equals the value generated for the firm by that extra worker. The essential difference here is that when a firm faces an upward sloping labour supply it will have to pay more to attract additional workers and also pay more to its existing workers. This will impact the firm’s willingness to hire additional workers.
A monopsonist is the sole buyer of a good or
service and faces an upward-sloping supply curve.
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