A Labour-Managed Firm's Reaction Function Reconsidered
So far it has been thought that a labour-managed (LM) firm's reaction function slopes upward in Cournot's short-run duopolistic situation where the variables acted on are quantities of output (see Vanek, 1970, pp.114-115 ; Ireland and Law, 1982). In this paper we will make it clear that this statement holds in some limited sense. In inquiring into the shape of the LM firm's reaction function in the short-run situation, it seems that the firm's labour cost function as defined by Meade (1974) is not only assumed to be subject to the increasing marginal labour cost of output everywhere but is also assumed to have the property that the elasticity of the short-run labour cost curve, which is defined as the proportion rate of change of labour with respect to output, is greater than unity. However, if we assume that the marginal labour cost is positive everywhere, and is at first declining and then increasing for fixed positive levels of the other factors, or that, even if it is always increasing in the output, the short-run labour cost function has the property that its elasticity is at first less than, equal to, and eventually greater than unity according to an increase in outpuit because of the existence of overhead labour, then what weill happen to the LM firm's reaction function?
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