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).

Answer 1

A. MRP = Change in revenue / Change in Labor

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

B. Now all units are charged at $50

First worker = 5*50 = $250

Second = 4*50 = $200

third = 3*50 = $150

and so on.

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

D. If the wage falls to $97 the demand for workers will increase, again for worker 4 MRP is $100 which is above $97 and worker 5 goes below.