Calvins Barber Shops, Inc. has a monopoly on barbershop services provided on the south side of Chicago
Question:
Calvin’s Barber Shops, Inc. has a monopoly on barbershop services provided on the south side of Chicago because of restrictive licensing requirements, and not because of superior operating efficiency. As a monopoly, Calvin’s provides all industry output. For simplicity, assume that Calvin’s operates a chain of barbershops and that each shop has an average cost-minimizing activity level of 750 haircuts per week, with Marginal Cost = Average Total Cost = $20 per haircut. Assume that demand and marginal revenue curves for haircuts in the south side of Chicago market are P = $80 - $0.0008Q MR = $80 - $0.0016Q Where P is price per unit, MR is marginal revenue, and Q is total firm output (haircuts). A. Calculate the monopoly profit-maximizing price/output combination, and the competitive market long-run equilibrium activity level. B. Calculate monopoly profits, and discusses the “monopoly problem” from a social perspective in this instance.
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A The monopoly profitmaximizing activity level is obtained by setting marginal revenue equal to marg...View the full answer
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