Answered: 3. The world is more beautiful with…

Microeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506893

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter10: Price-searcher Markets With Low Entry Barriers

Section: Chapter Questions

Problem 3CQ

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3. The world is more beautiful with just a bit of makeup.

Your friend Nora is an artist, and she loves makeup, so she decided to become a beautician. She recently began recording videos of herself applying makeup to others and posting those videos on social media. She typically charges about $250 for full facial makeup for special occasions like weddings, engagement parties, graduation parties, and so forth. Her work is great, and her videos made her famous on social media outlets, and now she has over 500,000 followers. The demand for her services has risen. People have to book her months in advance if they want her to do their makeup. She was excited about her success, and she wants to take advantage of it, so she wants to learn more about her opportunities and has texted you the following questions:

Now people want my services so badly, do you think I should raise my prices from $250 to $500 to make more revenue (sales)? Or should I reduce my price to $150? Please educate me on the things I should consider.
Do you think the demand for my services is sensitive to price change? Or do you think people will continue to use my services even if I double the price? Tell me why.

Expert Solution