Practice Quiz on Entry and Exit
1.
Demand for haircuts in the city of San Barberia is
given by the function P=39Q/20, where Q is the number of
haircuts per day and P is the price of a haircut. Everyone who
opens a barber shop in town has a fixed cost of $200 per day
which must be paid so long as a shop is in business and
regardless of the number of haircuts it sells. There is also a
variable cost of $4 for each customer served. Each barber shop
has a capacity of 40 customers per day. San Barberia currently
has 12 barbershops.
A barber shop that is open cannot escape its
fixed costs immediately, but must give 6 months notice to its
landlord of its intension to close. It also takes about 6 months
to organize and open a new barber shop.
The short run supply
curve for haircuts in San Barberia consists of
(a) a vertical segment extending from the origin to the point
(0,4) and an unbounded horizontal line extending to the right
of the point (0,4)
(b) a vertical segment extending from the origin to the point
(0,4), a horizontal segment extending from (0,4) to (480,4),
and a vertical segment extending upwards from (480,4).
(c) a vertical segment extending from the origin to the point
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 Fall '07
 Bergstrom
 Microeconomics

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