Refer to Table 17-6. The Hair Cuttery, a new hair salon, is ready to start hiring. The table above shows the relationship between the number of hairdressers the firm hires and the quantity of haircuts it produces
a. Suppose the price of haircuts is $8. Complete the table by filling in the values for marginal product and marginal revenue product.
b. The Hair Cuttery is an input price-taker. Suppose the wage paid to hairdressers is $40 per day. What is the profit-maximizing number of hairdressers?
c. Suppose the wage rate rises to $60 per day.
(i) What happens to the firm's demand curve for hairdressers?
(ii) What happens to the profit-maximizing quantity of hairdressers?
d. Suppose the wage rate is $40 per day and the price of haircuts is now $10.
(i) What happens to the firm's demand curve for hairdressers?
(ii) What happens to the profit-maximizing quantity of hairdressers?
a.
Number of Hairdressers Haircuts per Day Marginal Product Marginal Revenue Product
1 8 8 $64
2 16 8 64
3 23 7 56
4 29 6 48
5 34 5 40
6 38 4 32
b. The profit-maximizing number of hairdressers is 5, where the marginal revenue product equals the wage rate.
c. (i) The demand curve does not change.
(ii) The profit-maximizing quantity of hairdressers falls to 2.
d. (i) The demand curve shifts to the right.
(ii) The profit-maximizing quantity of hairdressers increases to 6.
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A single-price monopoly has the demand and marginal cost schedules given in the above table. What is the profit-maximizing level of output and price?
What will be an ideal response?
The adaptive expectations theory suggests that:
a. the price level that people expect in the future is based on the behavior of prices in the past. b. the unemployment rate adapts immediately to the inflation rate. c. people have perfect foresight and always predict future price levels correctly. d. people use all current information available to formulate their inflation expectations. e. people react spontaneously to price level changes and do not consider any past or present information.
Which of the following formulas would correctly calculate a monopolist's profit?
a. profit = price – marginal cost b. profit = price – average total cost c. profit = (price – marginal cost) × quantity d. profit = (price – average total cost) × quantity
Suppose Bart's MRS for sodas with chips is 6 bags of chips per soda. Also assume that Lisa's MRS for sodas with chips is 8 bags of chips per soda. Assuming that these rates of substitution don't depend on the amounts consumed, which of the following trades would make Bart and Lisa better off?
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