Suppose that a monopoly firm finds that its MR is $50 for the first unit sold each day, $49 for the second unit sold each day, $48 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?
b. Suppose that the monopolist is subjected to rate regulation and the regulator stipulates that it must charge exactly $40 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 $170 per day, how many workers will the unregulated monopoly demand? How many will the regulated monopoly demand? Looking at those figures, will the regulated or the unregulated monopoly demand more workers at that wage?
d. If the daily wage paid to workers falls to $77 per day, how many workers will the unregulated monopoly demand? How many will the regulated monopoly demand? Looking at those figures, will the regulated or the unregulated monopoly demand more workers at that wage?
e. Comparing your answers to parts c and d, does regulating a monopoly’s output price always increase its demand for resources?
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