Suppose that a monopoly firm finds that its MR is $68 for the first unit sold each day, $67 for the second unit sold each day, $66 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.

Required:
a. What is the firmâ€™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 $58 per unit for all units sold. At that price, what is the firmâ€™s MRP for each of the first five workers?
c. If the daily wage paid to workers is $242 per day, how many workers will the unregulated monopoly demand?
d. If the daily wage paid to workers falls to $113 per day, how many workers will the unregulated monopoly demand?
e. Comparing your answers to parts c and d, does regulating a monopolyâ€™s output price always increase its demand for resources?

b. Suppose that the monopolist is subjected to rate regulation and the regulator stipulates that it must charge exactly $58 per unit for all units sold. At that price, what is the firm's MRP for each of the first five workers?

Worker 1 = $290
Worker 2 = $232
Worker 3 = $174
Worker 4 = $116
Worker 5 = $58

c. If the daily wage paid to workers is $242 per day, how many workers will the unregulated monopoly demand?

2 workers only, since their MRP ≥ $242 per day

d. If the daily wage paid to workers falls to $113 per day, how many workers will the unregulated monopoly demand?

3 workers only, since their MRP ≥ $113 per day

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

No it doesn't, since regulation always affects markets. Markets need regulation, but that doesn't mean that the effects of regulation are always positive for everyone involved. In this case, regulation is probably good for customers, but bad for the workers employed and the business itself.

Explanation:

unit sold MR worker

1 $67 1

2 $66 1

3 $65 1

4 $64 1

5 $63 1

6 $62 2

7 $61 2

8 $60 2

9 $59 2

10 $58 3

11 $57 3

12 $56 3

13 $55 4

14 $54 4

15 $53 5