Joey notices that by employing an additional hairdresser, he will ...

[809779]

Joey notices that by employing an additional hairdresser, he will be able to increase the number of haircuts in his salon by 15 haircuts per day. The daily salary he will need to pay the hairdresser is 200.
 
  How much is the cost for an additional haircut? Describe the general relationship between the marginal product and marginal cost curves.

Question 2

All of the following are conditions which are favorable to the formation of cartels except
 
  A) the existence of a small number of firms.
  B) geographic proximity of firms.
  C) homogeneity of the product.
  D) easy entry into the industry.

[Ahnyah]

Answer to Question 1

Since employing an additional hairdresser (L) increases haircuts (Q) by 15, this is saying that MPL = 15. The wage (w) is 200. The marginal cost is the added cost of producing one more haircut. If one hairdresser can produce 15, Joey would need to hire 1/15 (or 1/MPL) to produce just one more haircut. The cost of 1/15 of a hairdresser is 1/15 of the wage, or
200/15 = 13.33. This is demonstrating the general relationship between the MC and MP curves. Specifically, MC = w/MP. This implies the shape of the MC is inversely related to the shape of the MP.

Answer to Question 2

D