Question

Problem 16-3 (Algo)

Suppose that a monopoly firm finds that its MR is $64 for the first unit sold each day, $63 for the second unit sold each day, $62 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.

a. What is the firm’s MRP for each of the first five workers?Instructions: Enter your answers as whole numbers.

Worker	MRP Unregulated
1
2
3
4
5

b. Suppose that the monopolist is subjected to rate regulation and the regulator stipulates that it must charge exactly $54 per unit for all units sold. At that price, what is the firm’s MRP for each of the first five workers?

Worker	MRP Regulated
1
2
3
4
5

c. If the daily wage paid to workers is $226 per day, how many workers will the unregulated monopoly demand?

If the daily wage paid to workers is $226 per day, how many workers will the regulated monopoly demand?

Looking at those figures, will the regulated or the unregulated monopoly demand more workers at that wage?

   (Click to select)  Unregulated monopoly  Regulated monopoly

d. If the daily wage paid to workers falls to $105 per day, how many workers will the unregulated monopoly demand?

If the daily wage paid to workers falls to $105 per day, how many workers will the regulated monopoly demand?

Looking at those figures, will the regulated or the unregulated monopoly demand more workers at that wage?

   (Click to select)  Unregulated monopoly  Regulated monopoly

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)  Yes  No

rev: 12_05_2018_QC_CS-150530

Answer 1

ANSWER :-

(A)

Worker	MRP Unregulated	Working
1	310	64+63+62+61+60
2	230	59+58+57+56
3	162	55+54+53
4	103	52+51
5	50	50

(B)

Worker	MRP Unregulated	Working
1	270	54*5
2	216	54*4
3	162	54*3
4	108	54*2
5	54	54*1

(C)

(1) 2 workers

(2) 1 worker

(3) Unregulated monopoly

Explanation: If the daily wage paid to workers is $226 per day the unregulated firm will employ the first worker when MRP=$310 and the second worker when MRP = $230. The unregulated firm will not employ the third worker as the MRP = $162. Thus 2 workers will be demanded by the unregulated firm. Similarly, regulated firm will employ the first worker when MRP=$270.00, however will not employ the second worker as MRP = $216.00. Thus 1 worker will be demanded by the regulated firm.

(D)

(1) 3 workers

(2) 4 workers

(3) Regulated monopoly

Explanation: At a daily wage of $105, the unregulated firm will hire the first 3 workers where MRP>MRC=$105. The regulated firm will employ where MRP>MRC=$105 thus till the first 4 workers.

(E) No

Explanation: The effect would depends on resource prices