FIGURE APX-1 MONOPOLY FIRM IN PRODUCT MARKET EMPLOYING LABOR FROM A COMPETITIVE MARKET
imageFirms with monopoly power in product markets are price makers. Because P > MR, it follows that VMPL > MRPL. A competitive firm would equate wages and value of the marginal product (VMPL), hiring LC workers and paying the going wage of W0 (point c). A firm with monopoly power, however, will equate wages and marginal revenue product (MRPL), thus hiring L0 workers, although again paying the prevailing wage W0 (point a). Hence, although both firms hire workers at the same wage, the firm with monopoly power hires fewer workers. Also, the value of the marginal product (VMPL) of workers in the monopolistic firm is much higher than what they are paid; their value to the firm is W1 (point b), although they are only paid W0 (point a). This difference is called monopolistic exploitation of labor.