1. Suppose the market demand and supply functions are and . You have just graduated and moved to this city; as a new MBA and an entrepreneur, you are considering entering the market for this product.
2. Determine the equilibrium price and quantity in this market
- d) Q = 1,888, AP = 236.0, MP = 217.3
- b) At 8 workers, SMC is rising as MP is falling
- a) Q = 7 (or 7.36 if unrounded) and AVC = $36.38
TC = 960 + 46.1Q – 2.65Q2 + 0.18Q3
ATC = 960/Q + 46.1 - 2.65Q + 0.18Q2
MC = 46.13 – 5.3Q + 0.54Q2
TC = $1862.70
AVC = $53.10
MC = $112.09
- b) When output is 8
- a) Since barber shops do not sell any physical or tangible items to customers, the prices charged are not constrained by market forces and can be unusually high or low.
- b) Yes; if they have some degree of market power (e.g., they can charge slightly higher prices since clients will not stop at every barber shop in the city to find the cheapest price), then they will not face perfectly elastic demand.
- d) Even with a small amount of market power due to attracting only local clients, it is still relatively easy to enter and exit the barber shop industry. Long-run profits will likely be driven down close to zero.
- b) P = $24.50 Q = 151
- c) Using the rule, the equilibrium price is below at the best quantity, so entering would immediately incur losses. I should not enter.
- b) No; the losses incurred under the old supply curve would cause some sellers to exit, shifting supply to the left (which is what this new supply curve did).
- c) No; is above so I would not recoup my ?xed costs.