In the above figure, if the natural monopoly is regulated using ...

[iveyjurea]

In the above figure, if the natural monopoly is regulated using an average cost pricing rule, but the firm can pad its costs and make the regulator believe its costs are LRAC (inflated), then the price the firm charges will increase from
 
  A) 18 to 24.
  B) 12 to 24.
  C) 12 to 18.
  D) 18 to 36.

Question 2

The above table has the marginal product schedule for Nick's Dry Cleaners, a perfectly competitive dry cleaning firm.
 
  a) If the price to dry clean a blouse is 8 each, complete the last column of the table.
  b) If Nick can hire workers at the going wage rate of 16 an hour, how many workers does Nick hire?

[ecox1012]

Answer to Question 1

A

Answer to Question 2

Quantity of labor
(workers) Marginal product
(blouses cleaned per day) Value of marginal product
(dollars per day)
1 4 32
2 4 32
3 3 24
4 2 16
5 1 8

a) The completed table is above.
b) Nick hires 4 workers because that is the quantity of workers that sets the value of marginal product equal to the wage rate.