Annex 1 The equilibrium of a monopsony in point of number of employees and offered wage is achieved when profit maximization is sought and the marginal labor cost equals the marginal labor income (labor demand depending on marginal work productivity) – the EM point in the chart below. For that point, the number of employees is L**, and the wage is w*. The monopsony will choose the employment L* and the wage w**, both lower than the equilibrium ones in a perfect competition labor market (EC). According to the labor supply line, w** is the wage accepted by L** workers, which will be paid to them by the company. The introduction of a minimum wage in a monopsony labor market can generate other effects than in a perfect competition market only if the minimum wage is higher than w**, but at most equal to WE. For a minimum wage equal to WE, the marginal labor cost will be horizontal up to LE and will coincide with both the labor demand Figure 2. Impact of the minimum wage on a monopsony labor market Marginal labor cost w and the labor supply. In such case, the minimum wage results in an increase in income, as well as in employment, from L** to LE at most. If the minimum wage exceeds the competitive equilibrium level and reaches, for instance, the w* level, the company cannot pay wages below it and, as a result, it will employ additional workers up to L* for the minimum wage and the marginal labor cost will have a horizontal section. Beyond L*, the marginal cost will rise along the dotted line in Figure 2. In such case, the labor supply will correspond to the number of employees L*, although the optimal labor demand from the profit perspective (EM, for which the horizontal marginal labor cost intersects the labor demand) is the one corresponding to L**. In these circumstances, there will be L*-L** willing to get a job, but who cannot be hired for the minimum salary. As a consequence, the employment will contract like in a competition market. 43 w* wEEC w** EM Labor supply (average cost of labor) L** LE C labor (marginal labor income) L* L (number of employees)