Abby is the sole owner of a nail salon. Her costs for a manicure are given by
TC = 10 + q2
AC = 10/q + q
MC = 2q
The nail salon is open only 2 days a week—Wednesdays and Saturdays. On both days, Abby acts as a price taker, but price is much higher on the weekend. Specifically, P = 10 on Wednesdays and P = 20 on Saturdays.
a. Calculate how many manicures Abby will perform on each day.
b. Calculate Abby’s profits on each day.
c. The National Association of Nail Salons has proposed a uniform pricing policy for all of its members. They must always charge P = 15 to avoid the claim that customers are being ‘‘ripped off’’ on the weekends. Should Abby join the Association and follow its pricing rules?
d. In its brochures, the Association claims that ‘‘because salon owners are risk averse, they will generally prefer our uniform price policy rather than subjecting themselves to widely fluctuating prices.’’ What do you make of this claim?