A hair salon has very loyal customers and faces a weekly demand for blowouts equal to qD = 1,040 – 20P. The salon has weekly total cost of TC(q)=0.05q2+20q+500. g) The hair Salon instead has market power. Suppos the firm charges all customers the same price for a blowout. Find the profit maximizing level of output (q*) and price (p*). h) Compute the price elasticity of demand at q* and show that at q* MR(q*) = p*(1+1/e) = MC(q*) i) Compute the consumer surplus created by the Salon and the profit of the firm.

A hair salon has very loyal customers and faces a weekly demand for blowouts equal to qD = 1,040 – 20P. The salon has weekly total cost of TC(q)=0.05q2+20q+500. g) The hair Salon instead has market power. Suppos the firm charges all customers the same price for a blowout. Find the profit maximizing level of output (q) and price (p). h) Compute the price elasticity of demand at q* and show that at q* MR(q) = p(1+1/e) = MC(q*) i) Compute the consumer surplus created by the Salon and the profit of the firm.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter17: Making Decisions With Uncertainty

Section: Chapter Questions

Problem 17.6IP

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