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.

1. Illustrate the short-run effects of a change on the price and output of a typical firm in

the market.

2. Show 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.

3. Suppose that, initially, the price of a typical children's haircut is $10. Do you think this

represents price discrimination? Why or why not?