In a monopsony, the single buyer's ability to set wages leads to a decrease in the marginal revenue product of labor as more workers are hired, because the lack of competition allows the buyer to dictate lower prices for labor.

A monopsony is a market situation where there is only one buyer for a particular type of labor, meaning that this buyer has significant control over the wages they pay. When the monopsonist hires more workers, they can lower the wages because there are no other competing employers to drive prices up. This decrease in wages happens because the added workers do not significantly increase the total output or profit for the buyer, known as the marginal revenue product of labor. For example, if a factory is the only employer in a town and needs more workers, it might offer lower wages because workers have no other job options. As a result, the factory can keep costs down while still filling its positions, which ultimately reduces the overall earnings of the workers.