Question
Master is a midlevel hair salon that has some market power. Suppose that the managers of Master have set prices for a basic haircut of
Master is a midlevel hair salon that has some market power. Suppose that the managers of Master have set prices for a basic haircut of $22 for an adult and $12 for a child. The marginal costs of both types of haircuts are equal. The managers discover that the marginal revenue from an adult haircut is $18 and the marginal revenue from a child haircut is $10. Should these managers change the prices of the adult and child haircuts to maximize their profit? Why or why not? (Check all that apply). A. should change its prices because marginal revenue from an adult haircut is more than the marginal revenue from a child haircut. B. should not change its prices because it already has significant market power. C. should change its prices because it can increase its profits by selling more adult haircuts and fewer child haircuts until both marginal revenues are equal. D. should not change its prices because it is already selling the profit-maximizing number of haircuts where its marginal revenue is equal to marginal cost.
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