1. Profit maximization Aa Aa Suppose Eileen gives haircuts on Saturdays to make extra money. She is the only person in town cutting hair on Saturdays and therefore has some market power. Assume that she does not incur fixed costs, and the only significant variable cost to Eileen in giving haircuts is her time. As she gives more haircuts, Eileen must increasingly forgo other valuable Saturday activities. For example, if she gives one haircut, she forgoes reading the paper after breakfast. If she gives two haircuts, she gives up reading the paper, sleeping an extra half-hour, and so on. Eileen's clients are a varied group willing to pay between $18.00 and $30.00 for a haircut. Assume that Eileen cannot charge her varied clients different prices. If Eileen charges $30.00 per haircut, she can have one client per week; if she charges $27.00, she can have two; if she charges $24.00, three, and so forth. The following table contains data for the revenues and costs of Eileen's haircut business as a function of her price-quantity choice. (The costs are based on the value of Eileen's alternative activities, in dollar terms. For example, the total cost of the first haircut is $4.00-the value to Eileen of being able to read the paper after breakfast.) Also, marginal profit is the additional profit Eileen earns from producing one more unit of output. Marginal profit is positive when a rise in output increases total profit and negative when a rise in production causes total profit to fall. Fill in the missing cells of the table and then use them to answer the questions that follow. Total Marginal Marginal Marginal Quantity Price Revenue Revenue Total Cost Cost Profit Profit (Haircuts (Dollars per (Dollars per (Dollars per (Dollars per (Dollars per (Dollars per (Dollars per per week) haircut) ($) week) ($) haircut) ($) week) ($) haircut) ($) week) ($) haircut) ($) 30.00 30.00 30.00 4.00 4.00 26.00 26.00 27.00 54.00 24.00 9.00 5.00 45.00 19.00 24.00 72.00 18.00 18.00 9.00 54.00 9.00 4 21.00 84.00 12.00 35.00 17.00 49.00 -5.00 18.00 90.00 6.00 60.00 25.00 30.00 -19.00 On the following graph, use the blue points (circle symbols) to plot Eileen's total revenue curve, use the orange points (square symbols) to plot her total cost curve, and use the purple points (diamond symbols) to plot her total profit curve. Be sure to graph from left to right, starting with zero haircuts and ending with five. Line segments will automatically connect the points. COST, REVENUE, AND PROFIT (Dollars per week) 100 Total Revenue 80 Total Cost 60 Profit 40 20 1 3 5 OUTPUT (Haircuts per week) Help Clear All On the following graph, use the blue points (circle symbols) to plot Eileen's total revenue curve, use the orange points (square symbols) to plot her total cost curve, and use the purple points (diamond symbols) to plot her total profit curve. Be sure to graph from left to right, starting with zero haircuts and ending with five. Line segments will automatically connect the points. COST, REVENUE, AND PROFIT (Dollars per week) 100 Total Revenue 80 Total Cost 60 Profit 40 20 OUTPUT (Haircuts per week) Help Clear All On the following graph, use the blue points (circle symbols) to plot her marginal revenue (MR) curve, and then use the orange points (square symbols) to plot Eileen's marginal cost (MC) curve for the first five haircuts. Be sure to plot from left to right. Line segments will automatically connect the points. MC AND MR (Dollars per week) 35 Marginal Revenue 30 Marginal Cost 25 20 15 10 П 3 OUTPUT (Haircuts per week) Help Clear All Eileen maximizes her profit by serving per week and charging per haircut. If Eileen gave more haircuts than her optimal quantity of haircuts, which of the following statements would be true? Check all that apply. O Eileen's marginal profit (marginal revenue minus marginal cost) from giving another haircut would be negative. O Eileen's marginal revenue would be less than her marginal cost of giving a haircut. O Eileen's total profit from giving haircuts (total revenue minus total cost) would decline from the amount at the optimal quantity. QNA 3.16 © 2004-2016 Aplia. All rights reserved. Graphs Tool 1.55 2002-2013 Cengage Leaming. All rights reserved. © 2013 Cengage Learning except as noted. All rights reserved. Grade It Now Save & Continue