How do you find a firm's best response function in an oligopsonistic labor market.

Question

I was given a hint regarding monopsonies, but not sure how it would help. How would I maximize profit, do you assume their is 1 firm or 2?

Answer 1

With cournot Duopoly you have two sellers competing for a piece of demand. With Duospony (doo wop doo wop doo wop!!) two buyers competing for a piece of the market supply curve. The mechanics are identical. All we do is flip the graphs upside down. Instead of an MR curve which is twice as steep as the Demand Curve we have a MC of buying is twice as steep. Solve first for the Monopsony where the MC intersects the demand curve.. The Market supply curve might take the form Ps = a + bQ. The marginal cost of buying become a + 2bQ. . Now you recognize the portion of the market left for the first buyer is Q-Qb. Transform the get the effective residual supply curve and MC curve and you wil be able to solve for the reaction or best response function