Question

Suppose that a monopoly firm finds that its MR is $66 for the first unit sold each day, $65 for the second unit sold each day, $64 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.

A. What is the firm's MRP for each of the first five workers?

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 $56 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 $234 per day, how many workers will the unregulated monopoly demand?

D. ID the daily wage paid to workers is $234 per day, how many workers will the regulated monopoly demand?

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

F. If the daily wage paid to workers falls to $109 per day, how many workers will the unregulated monopoly demand?

G. If the daily wage paid to workers falls to $109 per day, how many workers will the regulated monopoly demand?

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

I. Comparing your answers to parts c and d, does regulating a monopoly's output price always increase its demand for resources?

Answer 1

A)

B)

C)

The MRP of second worker is 238 (higher than wage rate of 234) and the MRP of 3rd worker is 168 (lower than wage rate).

Therefore, firm will hire 2 workers.

D)

The MRP of first worker is 280 (higher than wage rate of 234) and the MRP of second worker is 224 (lower than wage rate).

Therefore, firm will hire 1 worker.

E)

The unregulated monopoly demands more workers as seen in C and D.

F)

The MRP of third worker is 168 (higher than wage rate of 109) and the MRP of fourth worker is 107 (lower than wage rate).

Therefore, firm will hire 3 workers.

G)

The MRP of fourth worker is 112 (higher than wage rate of 109) and the MRP of fifth worker is 56 (lower than wage rate).

Therefore, firm will hire 4 workers.

H)

The regulated monopoly demands more workers as seen in F and G.

I)

Comparing above answers (H) with earlier answers (C and D), we can conclude that regulating a monopoly's output price do not always increase demand for resource.