Raphael's hair salon is a monopoly in a small town and is currently earning an economic profit. a) Does Raphael's hair salon produce the allocatively efficient quantity? Explain. b) Assume that Raphael signs a new lease with an increase in rent, a fixed cost. Will the price of haircuts provided by Raphael increase, decrease, or stay the same in the short run? Explain. c) Assume that new hair salons enter the market and that the market becomes monopolistically competitive. In long-run equilibrium, will Raphael's hair salon produce the productively efficient quantity? Explain.
Raphael's hair salon is a monopoly in a small town and is currently earning an economic profit. a) Does Raphael's hair salon produce the allocatively efficient quantity? Explain. b) Assume that Raphael signs a new lease with an increase in rent, a fixed cost. Will the price of haircuts provided by Raphael increase, decrease, or stay the same in the short run? Explain. c) Assume that new hair salons enter the market and that the market becomes monopolistically competitive. In long-run equilibrium, will Raphael's hair salon produce the productively efficient quantity? Explain.
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 16CQ
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Raphael's hair salon is a
a) Does Raphael's hair salon produce the
b) Assume that Raphael signs a new lease with an increase in rent, a fixed cost. Will the price of haircuts provided by Raphael increase, decrease, or stay the same in the short run? Explain.
c) Assume that new hair salons enter the market and that the market becomes
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