1. The local Hair Cuttery is a beauty parlor / hair cut establishment operating in a monopolisticallycompetitive industry in longrun equilibrium. The manager notes that each day, not all of the chairs inthe establishment are full. One option would be to lower the price of a haircut which bring in morecustomers and lower average total cost. Draw a graph showing the demand curve, marginal revenue curve, and average total cost. Then, on the same diagram, show what would happen if the Hair Cutterywere to lower the price that it operates to the minimum-cost output. Should the Hair Cuttery lower its price?
2. The Pizza Palace operates in monopolistic competition. When the Pizza Palace first opened it wasone of the only pizza parlors in Windsor and made a profit.
a. Draw a graph to illustrate this situation.
b. Draw a second graph to show what happened in the long run.