Demand for haircuts in the city of San Barberia is

given by the function P=39-Q/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

(0,9), a horizontal segment extending from (0,9) to (480,9),

and a vertical segment extending upwards from (480,9).

(d) a vertical segment extending from the origin to the point

(0,4), a horizontal segment extending from (0,4) to (560,4),

and a vertical segment extending upwards from (560,4).

(e) a vertical segment extending from the origin to the point

(0,4), a horizontal segment extending from (0,4) to (360,4),

and a vertical segment extending upwards from (360,4).

Barberia?

(a) $15

(b) $5

(c) $4

(d) $9

(e) $20

Barberia are as described in the previous questions, and if in

the long run there is free entry and exit from the industry,

competitive theory predicts that in the long run in San Barberia

the number of barber shops

(a) would decrease and each would sell more haircuts per day.

(b) would decrease and each would continue to operate at full

capacity.

(c) would increase.

(d) would remain the same, but each would sell more haircuts.

(e) would remain the same and each would continue to operate at

full capacity.

none of the old barbershops close. In the new short run

equilibrium the price of a haircut

(a) will be $9 and all barbershops will make zero profits.

(b) will be $10 and all barbershops will make positive profits.

(c) will be $8 and all barbershops will make losses.

(d) will be $5 and all barbershops will make losses.

(e) will be $6 and all barbershops will make losses.

number of barber shops

(a) is 15 and the price of a haircut is $9.

(b) is 17 and the price of a haircut is $5.

(c) is 12 and the price of a haircut is $15.

(d) is 13 and the price of a haircut is $13

(e) is 16 and the price of a haircut is $9.

barber shops had adjusted so that both the number of barber shops and the price of a hair cut were in long run equilibrium. After long run equilibrium had been reached without any taxes, the city unexpectedly imposed a tax on barbers, requiring them to pay a $2 sales tax on every haircuts they sold. What does economic theory

predict would be the short run effect of the tax on the price of a hair cut?

(a) The price would rise by $2.

(b) The price would rise by $1.

(c) The price would remain the same as before the tax.

(d) The price would rise by $.50.

(e) The price would rise by $1.50.

barber shops in the short run?

(a) since prices rise by the amount of the tax, there would be no effect.

(b) profits would fall, but would remain positive after the tax.

(c) profits would fall to zero after the tax.

(d) in the short run, after the tax is imposed, each firm would

have a loss of $40.

(e) in the short run, after the tax is imposed, each firm would

have a loss of $80.

haircuts in San Barberia would cause the price of haircuts

(a) to rise by $1.50 and the number of barbershops to increase by 1.

(b) to rise by $1 and the the number of barbershops to stay

constant.

(c) to rise by $2 and the number of barbershops to stay

constant.

(d) to rise by $2 and the number of barbershops to decrease by

1.

(e) to rise by $2 and the number of barbershops to

decrease by 3.

1. B

2. A

3. C

4. D

5. A

6. C

7. E

8. D