I open a barber shop on State Street selling cheap haircuts to undergrads. My barbers work...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
I open a barber shop on State Street selling cheap haircuts to undergrads. My barbers work fast. They can give a good haircut in just 15 minutes, but going that fast, each time they give a haircut, there's a chance they cut the customer's ear with their scissors; slowing down would reduce this risk. Getting cut by a barber's scissors is painful, doing $500 worth of harm to the customer. The risk is as follows: Time spent per haircut 15 minutes. 20 minutes 30 minutes Risk of a scissors accident 1 in 50 1 in 100 1 in 500 My barbers value their time at $30 per hour, which is also how much I pay them; so the cost (both the social cost and the cost to my business) of providing a 15 minute haircut is $7.50, the cost of a 20 minute haircut is $10, and the cost of a 30 minute haircut is $15. Assume the budget haircut market is perfectly competitive, and my customers can correctly judge the risk of getting cut. (a) What is the efficient amount of time for my barbers to spend on each haircut? Explain. (b) Suppose as the business owner, I'm liable, under a strict liability rule, for any accidents that my barbers cause. How fast would I instruct them to work, and why? How much would I charge per haircut? Would demand for haircuts be efficient, higher than efficient, or lower than efficient? (c) Now suppose instead that I am liable under a simple negligence rule, and the standard of care is determined by the Hand Rule. Would I be liable for damages if my barbers were giving 15 minute haircuts? If they were giving 20 minute haircuts? If they were giving 30 minute haircuts? Explain. (d) Under a simple negligence rule with the standard of care determined by the Hand Rule, how fast would I instruct by barbers to work, and why? How much would I charge per haircut? Would demand for haircuts be efficient, higher than efficient, or lower than efficient? (e) If my customers were unaware of the risk of getting cut and didn't consider it, would demand be higher than, lower than, or efficient under a strict liability rule? What about under simple negligence? Explain. (f) Suppose that due to hindsight bias, in the event of an accident, a jury would believe an accident had been significantly more likely to occur than it actually was. Would this cause a problem under a strict liability rule? Would this cause a problem under a negligence rule? Explain. I open a barber shop on State Street selling cheap haircuts to undergrads. My barbers work fast. They can give a good haircut in just 15 minutes, but going that fast, each time they give a haircut, there's a chance they cut the customer's ear with their scissors; slowing down would reduce this risk. Getting cut by a barber's scissors is painful, doing $500 worth of harm to the customer. The risk is as follows: Time spent per haircut 15 minutes. 20 minutes 30 minutes Risk of a scissors accident 1 in 50 1 in 100 1 in 500 My barbers value their time at $30 per hour, which is also how much I pay them; so the cost (both the social cost and the cost to my business) of providing a 15 minute haircut is $7.50, the cost of a 20 minute haircut is $10, and the cost of a 30 minute haircut is $15. Assume the budget haircut market is perfectly competitive, and my customers can correctly judge the risk of getting cut. (a) What is the efficient amount of time for my barbers to spend on each haircut? Explain. (b) Suppose as the business owner, I'm liable, under a strict liability rule, for any accidents that my barbers cause. How fast would I instruct them to work, and why? How much would I charge per haircut? Would demand for haircuts be efficient, higher than efficient, or lower than efficient? (c) Now suppose instead that I am liable under a simple negligence rule, and the standard of care is determined by the Hand Rule. Would I be liable for damages if my barbers were giving 15 minute haircuts? If they were giving 20 minute haircuts? If they were giving 30 minute haircuts? Explain. (d) Under a simple negligence rule with the standard of care determined by the Hand Rule, how fast would I instruct by barbers to work, and why? How much would I charge per haircut? Would demand for haircuts be efficient, higher than efficient, or lower than efficient? (e) If my customers were unaware of the risk of getting cut and didn't consider it, would demand be higher than, lower than, or efficient under a strict liability rule? What about under simple negligence? Explain. (f) Suppose that due to hindsight bias, in the event of an accident, a jury would believe an accident had been significantly more likely to occur than it actually was. Would this cause a problem under a strict liability rule? Would this cause a problem under a negligence rule? Explain.
Expert Answer:
Answer rating: 100% (QA)
a What is the efficient amount of time for my barbers to spend on each haircut Explain ANSWER The efficient amount of time for my barbers to spend on each haircut is 15 minutes This is because going a... View the full answer
Related Book For
Managerial Accounting Decision Making and Performance Management
ISBN: 978-0273764489
4th edition
Authors: Ray Proctor
Posted Date:
Students also viewed these law questions
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
The Crazy Eddie fraud may appear smaller and gentler than the massive billion-dollar frauds exposed in recent times, such as Bernie Madoffs Ponzi scheme, frauds in the subprime mortgage market, the...
-
You are the senior auditor in charge of the December 31, 2018, year-end audit for Cleo Patrick Cosmetics Inc. (CPCI). CPCI is a large, privately held Canadian company that was founded in 1999 by one...
-
Why might OTC derivatives be considered more risky than exchange-traded derivatives?
-
Compute the following items for the statement of cash flows: a. Beginning and ending Accounts Receivable are $42,000 and $35,000, respectively. Credit sales for the period total $139,000. How much...
-
The procedure for testing homogeneity is the same as the procedure for testing independence. In Exercises 68, determine whether the statement is true or false. If the statement is false, rewrite it...
-
The following is taken from the Colaw Company balance sheet. Interest is payable annually on January 1. The bonds are callable on any annual interest date. Colaw uses straight-line amortization for...
-
How much money do you need to live comfortably each year? Everyone could have different answer here. So, let's make it 1million here, and this will be your annual income at retirement with this same...
-
"Part 1: The Performance Lawn Equipment database contains data needed to develop a pro forma income statement. Dealers selling PLE products all receive 18% of sales revenue for their part of doing...
-
For the indicated units produced, Katherin Plc Ltd. reported the costs shown below: Units produced: Total direct material: Total direct labor: 9,500 4,600 $95,950 $46,460 $118,750 $57,500 Total...
-
Using your knowledge of the South African transport market, and the economy, reflect on the procurement problems that may occur during the implementation of successful transport PPP in South Africa.
-
Prepare a management briefing that explains the article's key issue or challenge as it is likely to develop over the next three to five years. If necessary, use any or all of the other required...
-
Suppose that in a week the price of ground beef increases from $4.00 to $5.00 per pound. At the same time, the quantity of ground beef demanded at a typical grocery store decreases from 4,000 to...
-
Suppose a country only produces pineapples and coconuts. In 2020 (the base year), 800 pineapples were produced and sold at $2 each and 500 coconuts were produced and sold at $3 each. In 2021, 1,000...
-
How might leaders adapt their delegation strategies in times of crisis or uncertainty, maintaining flexibility and resilience in the face of evolving challenges, while also demonstrating empathy and...
-
Ted owns a Lexus worth $39,600. He owns a home worth $286,000. He has a checking account with $780 in it and a savings account with $1,480 in it. He has a mutual fund worth $103,310. His personal...
-
What is a make-or-buy decision?
-
Jim Culf is the manager of the Royal Hotel, Bigtown-on-Sea. In anticipation of preparing next years budget, he has analysed his recent costs and income. His findings are summarized below....
-
Elbo Ltd makes roof tiles. It has two production departments: moulding and packing. It makes two different sizes of tile, the Handi and the Jiant. The following table shows the standard costs of...
-
Binley Blades specializes in the manufacture of rotor blades for helicopters. It has just spent 50,000 developing a new type of blade based on a mixture of carbon fibre and naturally occurring...
-
A common-size income statement for Liberty would report (amounts rounded) a. Net income of \(16 \%\) b. Cost of sales at \(36 \%\) c. Sales of \(100 \%\) d. All the above
-
During 2005 , Liberty's days' sales in receivables ratio was a. 39 day's b. 37 day's c. 35 day's d. 30 days
-
The company has 2,500 shares of common stock outstanding. What is Liberty's earnings per share? a. 2.04 b. 3.6 times c. \(\$ 1.22\) d. \(\$ 3.05\)
Study smarter with the SolutionInn App