4. There are two Barber Shops in a town, Hugo's and Hopen's, that are Bertrand competitors. Total weekly demand for haircuts in the town is
4. There are two Barber Shops in a town, Hugo's and Hopen's, that are Bertrand competitors. Total weekly demand for haircuts in the town is Q = 130 p. Currently the going price for the haircut is $30 and sadly, Hopen's is always empty. Hugo, the owner of Hugo's is extremely happy with his business, making prots of $1,000 a week in haircuts. (a) What are the marginal costs per haircut for each of these Barbers? Explain. (b) A third company called Quickcuts rents trimming machines that would reduce the marginal costs of these barbers by half. If it offers renting the trimming machine only to Hugo's, how much can it charge for that? What if it offers it to Hopen's only? Show your calculations. (c) What could Quickcuts charge if it used the following scheme. First it makes an exclusive take-it-orleave it offer to Hugo's for a: dol- lars. If Hugo rejects this offer, then they make an offer to Hopen's as given in point (b). What is the maximum value of a: that Quickuts could charge Hugo's
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance