Raphael’s hair salon is a monopoly in a small town and is currently earning an economic profit. Draw a correctly labeled graph for Raphael and include the curves that are necessary to identify the following. The profit-maximizing price and quantity of haircuts, labeled Pm and Qm The area representing economic profits, shaded completely
Raphael’s hair salon is a
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Draw a correctly labeled graph for Raphael and include the
curves that are necessary to identify the following.-
The profit-maximizing
price and quantity of haircuts, labeled Pm and Qm -
The area representing economic profits, shaded completely
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Does Raphael’s hair salon produce the
allocatively efficient quantity? Explain. -
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.
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Assume that new hair salons enter the market and that the market becomes
monopolistically competitive. Answer each of the following.-
The entry of new hair salons creates close substitutes for each individual salon’s services. As a result, will the demand for Raphael’s hair salon become more elastic or become less elastic, or will there be no change in the elasticity?
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Will the entry cause the demand curse for Raphael's haircuts to shift to the left, shift to the right, or stay the same?
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In long-run equilibrium, will Raphael’s hair salon produce the productively efficient quantity? Explain.
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