Answer Happy

2. Marginal analysis and profit maximization Suppose Hilary gives haircuts on Saturdays to make extra money. She is the only person in town cutting hair on Saturdays and therefore has some market power. Assume that she does not incur fixed costs, and the only significant variable cost to Hilary is her time. As she gives more haircuts, Hilary must increasingly forgo other valuable Saturday activities. For example, if she gives one haircut, she forgoes reading the paper after breakfast. If she gives two haircuts, she gives up reading the paper and sleeping an extra half-hour. Hilary's clients are a varied group willing to pay between $20.00 and $36.00 for a haircut. Assume that Hilary cannot price discriminate, i.e., charge different clients different prices. If Hilary charges $36.00 per haircut, she will have one client per week; if she charges $32.00, she will have two; if she charges $28.00, three, and so forth. The following table contains data on the revenues and costs of Hilary's haircut business as a function of her price-quantity choice. (The costs are based on the value of Hilary's alternative activities, in dollar terms. For example, the total cost of the first haircut is $4-the value Hilary places on reading the newspaper after breakfast.) Fill in the missing cells of the table and then use them to answer the questions that follow. Output (Haircuts per week) 0 1 2 3 4 5 Price (Dollars per haircut) 36.00 32.00 28.00 24.00 20.00 Total Revenue (Dollars per week) 0 36.00 64.00 84.00 100.00 Marginal Revenue (Dollars per haircut) 36.00 28.00 20.00 4.00 Total Cost (Dollars per week) 0 4.00 8.00 16.00 24.00 32.00 Marginal Cost (Dollars per haircut) 4.00 4.00 8.00 8.00 Profit (Dollars per week) 0 32.00 56.00 68.00 68.00 On the following graph, use the blue points (circle symbol) to plot Hilary's total revenue curve, use the orange points (square symbol) to plot her total cost curve, and use the purple points (diamond symbol) to plot her profit curve. Be sure to graph from left to right, starting with zero haircuts and ending with five. Line segments will automatically connect the points.
TOTAL REVENUE, TOTAL COST, AND PROFIT (Dollars per week) 100 80 40 0 2 3 4 QUANTITY OF OUTPUT (Haircuts per week) 5 o Total Revenue Total Cost Profit On the following graph, use the blue points (circle symbol) to plot her marginal revenue (MR) curve, and then use the orange points (square symbol) to plot Hilary's marginal cost (MC) curve for the first five haircuts. Be sure to plot from left to right and to plot between integers. For example, if Hilary's marginal cost of increasing her production from one haircut to two haircuts is x, then you would plot a point at (1.5, x). Line segments will automatically connect the points.
On the following graph, use the blue points (circle symbol) to plot her marginal revenue (MR) curve, and then use the orange points (square symbol) to plot Hilary's marginal cost (MC) curve for the first five haircuts. Be sure to plot from left to right and to plot between integers. For example, if Hilary's marginal cost of increasing her production from one haircut to two haircuts is x, then you would plot a point at (1.5, x). Line segments will automatically connect the points. PRICE AND COST (Dollars per haircut) 40 35 30 25 20 15 5 0 0 QUANTITY OF OUTPUT Hilary maximizes her profit by serving one client two clients three clients four clients five clients ek) 5 Marginal Revenue Marginal Cost per week and charging Hilary's profit (total revenue minus total cost) would decline. Hilary's marginal revenue would be less than her marginal cost. (?) per haircut. If Hilary gave more haircuts than her optimal quantity of haircuts, which of the following statements would be true? Check all that apply.