Question

8. Problems and Applications Q8 There are four consumers willing to pay the following amounts for haircuts, and there are four haircutting businesses with the following costs: Consumers' Willingness to Pay Charles: $50 Gilberto: $35 Juanita: $25 Dina: $40 Firms' Costs Firm A: $25 Firm B: $40 Firm C: $30 Firm D: $45 Each firm has the capacity to produce only one haircut. For efficiency, should be given. Which businesses should cut hair

Answer 1

Answer: For efficiency 1 hair cut should be given.

Firm A should cut hair, because the marginal cost is lower than the willingness to pay.

Step-by-step explanation:

Given Data:

Consumers' Willingness to Pay,

Charles: $50

Gilberto: $35

Juanita: $25

Dina: $40

Marginal cost,

Firm A: $25

Firm B: $40

Firm C: $30

Firm D: $45

The marginal willingness to pay is higher than the marginal cost till the first haircut. So, for efficiency, 1 haircuts should be given.

Firm A should cut hair, because the marginal cost is lower than the willingness to pay.