Suppose the monopolistically competitive barber shop industry in a community is in long-run equilibrium, and that the typical price is $20 per haircut. Moreover, the population is rising. 1. Illustrate the short-run effects of a change on the price and output of a typical firm in the market. 2. Show what happens in the long run. Will the final price be higher than $20? Equal $20? Be less than $20? Assume that nothing happens to the cost of producing haircuts. 3. Suppose that, initially, the price of a typical children’s haircut is $10. Do you think this represents price discrimination? Why or why not?
Suppose the monopolistically competitive barber shop industry in a community is in long-run equilibrium, and that the typical price is $20 per haircut. Moreover, the population is rising. 1. Illustrate the short-run effects of a change on the price and output of a typical firm in the market. 2. Show what happens in the long run. Will the final price be higher than $20? Equal $20? Be less than $20? Assume that nothing happens to the cost of producing haircuts. 3. Suppose that, initially, the price of a typical children’s haircut is $10. Do you think this represents price discrimination? Why or why not?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Suppose the
long-run equilibrium, and that the typical
population is rising.
1. Illustrate the short-run effects of a change on the price and output of a typical firm in
the market.
2. Show what happens in the long run. Will the final price be higher than $20? Equal
$20? Be less than $20? Assume that nothing happens to the cost of producing haircuts.
3. Suppose that, initially, the price of a typical children’s haircut is $10. Do you think this
represents
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