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In: Economics

What is a Firm's best response function in an oligopsonistic labor market?

What is a Firm's best response function in an oligopsonistic labor market?

Solutions

Expert Solution

Oligopsonist market has few large buyers for a product per service .The buyers have more bargaining power over the sellers and can drive down prices .


Explanation:

The labor market for oligopsony's depicts a hold up in the wage competition .Workers have limited bargaining power .

When a firm invests more , it pays more in wage amounts in order to attract workers from the rival firms .

Firms in the market can implement various strategies to ensure efficient production is met .These include ;

Firms acting independently without having any collusive agreement .The market will therefore show high employments and wage stability .

Firms can organize themselves into a cartel which will push for lowering of the employee wages .It results in a low employment rate and high profits .

Firms can reduce their own employment with the aim to maximize profits .It is achieved by lowering the wage rates .

Rahul Sunny answered 2 years ago
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