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?
Question 2
Assume that the medical screening industry is perfectly competitive. Consider a typical firm that is making short-run losses.
Suppose the medical screening industry runs an effective advertising campaign which convinces a large number of people that yearly CT scans are critical for good health. How will this affect a typical firm that remains in the industry?
A) The firm's marginal revenue curve and average cost curve shift upwards in response to the increase in market price and advertising expenditure. The firm increases output until it starts breaking even.
B) The marginal revenue curve shifts upwards, the firm's output increases along its marginal cost curve, it expands production until it breaks even.
C) The firm's supply curve shifts right and its marginal revenue curve shifts upwards as the market price rises and ultimately the firm starts making profits.
D) The marginal revenue curve shifts upwards, the firm's output increases along its marginal cost curve, it expands production and eventually starts making profits.
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