The Spa DuJour Salon faces a downward-sloping demand curve for haircuts and hires stylists in a competitive labor market. How will each of the following affect the short-run demand for stylists at Armadillo?
(i) A new competitor, the Jake the Barber, opens for business directly across the street from Spa DuJour.
(ii) The cost of Spa DuJour's annual licensing fee increases from $50 to $200; fortunately the increase is not large enough to drive Spa DuJour out of business.
(iii) Spa DuJour expands its facilities to include two new styling bays.
(i) The arrival of a new competitor will lower demand for Spa DuJour's haircuts, which in turn lowers marginal revenue (as long as demand does not become too elastic) and reduces the price of haircuts. Thus, Spa Du Jour's short-run demand for stylists falls.
(ii) The licensing fee is a sunk cost that totally comes out of the firm's profit. The licensing fee will not affect the price of a haircut at Spa DuJour or the marginal product of stylists. Thus, Spa DuJour's short-run demand for labor is unaffected.
(iii) In this case, labor and capital are complements in production. The new styling bays raise stylists' marginal product, so Spa DuJour's short-run demand for stylists increases.
You might also like to view...
The three most important international financial centers today are
A) London, Tokyo, and Beijing. B) Tokyo, London, and New York. C) New York, Los Angeles, and London. D) San Francisco, Paris, and Mexico City.
Which of the following conditions would result in the short run marginal cost curve not correctly reflecting the supply behavior of a profit-maximizing firm?
a. The firm is a price taker. b. Price exceeds average total cost. c. The elasticity of demand facing the firm is -3. d. the firm can vary several inputs in the short run.
A focus on quality means:
A) A firm does nothing but produce the highest quality product. B) An inability to actually produce anything. C) A firm must decide whether an additional focus on quality is worth the cost. D) The firm will definitely be successful. E) Consumers will not be willing to purchase the product.
A prepaid hospital plan created by Baylor Hospital for a group of Dallas public school teachers in 1929 is considered the forerunner of what was later called:
a. Blue Shield. b. the health maintenance organization. c. major medical insurance. d. managed care. e. Blue Cross.