Final answer:
The question explores the effect on supply and average total cost when the price of haircuts increases and applies economic concepts like opportunity sets and indifference curves to illustrate changes in consumer behavior.
Step-by-step explanation:
The scenario described involves a change in supply and cost due to a change in the price of haircuts. Initially, at a price of $12 for a haircut, the supply is at 100 haircuts. When the price increases to $25, the supply also increases to 300 haircuts as barbers are willing to work longer hours. With wages factored in, costs can be calculated. For instance, if the wage is $80 per barber, the cost for two barbers would be 2 × $80 = $160. When analyzing the total cost which includes both fixed and variable costs, the average total cost (ATC) can be calculated. For example, if the total cost for 40 haircuts is $320, then the ATC is $320 divided by 40, resulting in $8 per haircut. The ATC typically follows a U-shaped curve, where it starts high, decreases as the quantity of output increases, and eventually rises again due to diminishing returns.
If the price rises further to $30, adjustments in consumer behavior can be observed using concepts of opportunity sets and indifference curves. Ogden initially may start at choice A on a higher opportunity set and a higher indifference curve. After the increase in the price of haircuts (and possibly other goods like pizza), Ogden moves to choice B on a lower opportunity set and a lower indifference curve, adjusting his consumption according to his preferences and budget constraint.