Suppose the monopolistically competitive barber shop industry in a community is in long-run equilibrium, and that the typical price is $20 per haircut. Moreover, the population is rising.
a. Draw a graph to show how the short-run effects of a change on the price and output of a typical firm in the market.
b. Draw a graph showing what happens in the long run. Will the final price be higher than $20? Equal $20? Be less than $20? Assume that nothing happens to the cost of producing haircuts.
c. Suppose that, initially, the price of a typical children’s haircut is $10. Do you think this represents price discrimination? Why or why not? Show your work and explain as simply as possible.
Show work, and explain as simply as possible.