Question

Suppose that a monopoly firm finds that its MR is $60 for the first unit sold each day, $59 for the second unit sold each day, $58 for the third unit sold each day, and so on. Further suppose that the first worker hired produces 5 units per day, the second 4 units per day, the third 3 units per day, and so on.

Instructions: Enter your answers as whole numbers.

a. What is the firm’s MRP for each of the first five workers?

b. Suppose that the monopolist is subjected to rate regulation and the regulator stipulates that it must charge exactly $50 per unit for all units sold. At that price, what is the firm’s MRP for each of the first five workers?

c. If the daily wage paid to workers is $210 per day, how many workers will the unregulated monopoly demand?  worker(s).

     If the daily wage paid to workers is $210 per day, how many workers will the regulated monopoly demand?  worker(s).

     Looking at those figures, will the regulated or the unregulated monopoly demand more workers at that wage? (Click to select)UnregulatedRegulated.

d. If the daily wage paid to workers falls to $97 per day, how many workers will the unregulated monopoly demand?  worker(s).

     If the daily wage paid to workers falls to $97 per day, how many workers will the regulated monopoly demand?  worker(s).

     Looking at those figures, will the regulated or the unregulated monopoly demand more workers at that wage? (Click to select)UnregulatedRegulated.

e. Comparing your answers to parts c and d, does regulating a monopoly’s output price always increase its demand for resources? (Click to select)YesNo.

Answer 1

Answer (A)

MRP = (Change in revenue)/(Change in Labour)
For first worker = 60 + 59 + 58 + 57 + 56 = 290/1 = $290 (Since he produces 5 units)
Second Worker = 55 + 54 + 53 + 52 = 216/1 = $174 (Since he produces 4)
Similarly,
Third worker = 51 + 50 + 49 = $150
Fourth worker = 48 + 47 = $95
Fifth worker = $46

Answer (B)

Now all units are charged at $50
First worker = 5*50 = $250
Second = 4*50 = 200
third = 3*50 = 150
and so on....

Answer (C)

If the wage is $210 it will demand workers until the MRP decreases below 210...
and that happens for worker 2 here (since he can produce only $200 for $210 wage, he should not be hired) hence only one worker will be hired here

Answer (D)

If the wage falls to $97 the demand of workers will increase...

again for worker 4 MRP is $100 which is above $97 and for worker 5 goes below