The article describes two competing claims: 1) city officials claim that salons are arbitrarily charging different prices by gender, and 2) salon owners claiming that servicing different genders entails producing a product with a different cost function. Provide answers to the following questions:

City Nails Sex-Based Pricing

Nail salons are among 138 businesses issued violations so far this year under a little-known New York City law against gender-pricing discrimination.And until recently, a wax at Vanilla Hair Spa on the Upper East Side was priced differently for men and women.No more. The salons are among 138 businesses that have been hit this year for violating a little-known provision that has many pulling their hair: gender-pricing discrimination. The majority of violations so far this year103were issued to salons and barbershops."It's ridiculous. I have some guys who need to come in every two weeks," said Ania Siemieniaka, the owner of Freckle Skin and Hair, which had to pay $175 for a violation. "If I raise my prices, I'll lose all my male customers."The city's Department of Consumer Affairs began stepping up enforcement of the law last year, when it issued 580 gender-pricing violations to businesses, more than double the 212 doled out the year before. "We wanted to really send a strong message to businesses about this kind of illegal pricing, so we did a very focused sweep over the course of the year," said the department's commissioner, Jonathan Mintz. "That sweep was largely targeted at salons and barbershops and laundry and dry cleaning."Nearly all of the violations were the result of sweeps rather than complaints, said Mr. Mintz, because businesses and industry groups weren't correcting the practice on their own.

The fines for first-time violations range from $50 to $200, while those for subsequent ones are $100 to $500."This is a very basic consumer-protection law and it is also a very basic civil-rights law," said Mr. Mintz."I think there are completely legitimate reasons to charge different prices for different services and that one should be specific for what those reasons are," he added. "Reasons are not chromosomes."While salons have received the most violations so far this year, in 2011 laundry and dry-cleaning businesses received 272 violations, compared with 269 for salons. In 2010, on the other hand, dry cleaners had only five violations, while "miscellaneous nonfood retail," which includes salons, had 207 violations.Salon employees say the law makes no sense.Ben Duon, the manager at Kim's Holly Salon, said the business received a $300 violation for charging men $2 more for manicures."It cannot be the same. It's much more work to do the men," he said. "Most men, they need a good cleaning. They're contractors, you need to do a lot of work on their nails."At Vanilla Hair Spa, manager Oksana, who didn't want to give her last name, said the charge to wax men used to be $5 more than for women."If someone's waxing a man's back and a woman's back, it's like day and night," she said. "Of course it takes longer for men. It's more labor, more product."But when it comes to haircuts, salon owners say women should be charged more. At Foxy Salon in Williamsburg, owner Ria Fuentes said a haircut for a man takes 30 minutes while a women's cut requires 60."Every salon has different prices," she said, adding that the inspectors are "just going around to all of them."Mr. Mintz said the department makes efforts to educate businesses about the law, which went into effect in 1998.But Leon Kogut of Leon's Fantasy Cut in Newkirk Plaza in Brooklyn said he's never been made aware of the law in 21 years of business."The guy says this is discrimination," said Mr. Kogut. "What about insurance? Man's life insurance costs more than women. Same thing with car insurance."Mr. Kogut said the department should give a warning first and then come back and issue a violation if it isn't corrected. "I've never gotten any information" on this, he said. "I didn't know it existed."

a). Suppose salons are reasonably close to being described as a perfectly competitive market in manicures (easy entry/exit, relatively homogenous product across firms, firms are price takers, etc). Could we observe price differences across genders without cost differences between them?

i).Uncertain, it would depend on whether or not marginal revenue equals marginal cost.

ii).No, in a perfectly competitive market firms have no ability to set price above marginal cost.

iii).Yes, firms would have the ability to raise prices without losing all their consumers, allowing them to set a price above marginal cost.

b).Suppose salons have monopoly power (be sure you know what this means, see your notes) and the salon employees are lying about there being different costs between the two genders for manicures.

1) What kind of price discrimination this is?

2) If men are charged higher prices than women for manicures as in the story, which group is the more price elastic group?

i).3rd degree price discrimination / women are more price inelastic

ii).1st degree price discrimination / women are more price elastic

iii).2nd degree price discrimination / women are more price elastic

iv).3rd degree price discrimination / men are more price elastic

v).1st degree price discrimination / men are more price elastic

vi).2nd degree price discrimination / men are more price elastic

c). Suppose salons have monopoly power and the salon employees are lying about there being different costs between the two genders. Suppose the city is successful using fines to eliminate price discrimination by gender, so that now the salons charge the same price to each gender for manicures. Finally, it does appear to be the case that there are thousands of salons in the city (Google Maps turns up 13,000+ results Links to an external site.), and their profit margins seem to be low, so as to indicate that they are a very competitive market even if not perfectly competitive. Would men pay more or less for these services than before the city policy? Would women pay more or less for these services than before the city policy?

i).If price discrimination is banned and a single price is charged, men will pay less and women will pay more.

ii).If price discrimination is banned and a single price is charged, women will pay less and men will pay more.

d). If the nail salon market is perfectly competitive, then which of the following explains the higher prices for men?

i).The demand curve for men is more inelastic than the demand curve from women.

ii).The demand curve for men is lower (i.e. further to the left) than the demand curve for women.

iii).The marginal cost of cleaning men's nails is higher than the marginal cost of cleaning women's nails.

e). There exist both for-profit and non-profit hospitals. Any large metropolitan area is likely to have several hospitals of each type. Both types of hospitals have access to information which allows them to practice imperfect first-degree price discrimination. Non-profit hospitals need to generate enough revenue so that they are not losing money (i.e. their total revenue must equal total cost). Non-profit hospitals are oftentimes interested in serving low income groups by charging lower fees than they would for their higher income patients.

How could price discrimination help the nonprofit hospital further its social objectives (as compared to the prospect of having to charge a single price to all consumers)?

i).The non-profit must still cover their costs, but price discrimination could let them generate more revenue from higher income/more price inelastic groups so that they can extend services to lower income/more price elastic groups at lower prices.

ii).The non-profit must still cover their costs, but price discrimination could let them generate more revenue from higher income/more price elastic groups so that they can extend services to lower income/more price inelastic groups at lower prices.

f). Under what conditions would lead to a profit maximizing for-profit hospital to set the same prices as the nonprofit hospitals seeking to further the social objective of serving low income groups?

i) Competition that keeps profits close to zero (i.e. revenues equal costs); and 2) they are able to price discriminate according to elasticity; 3) higher income groups are more price elastic

ii) Competition that keeps profits close to zero (i.e. revenues equal costs); and 2) they charge everyone the same price;

iii) Competition that keeps profits close to zero (i.e. revenues equal costs); and 2) they are able to price discriminate according to elasticity; 3) higher income groups are more price inelastic

g). Most state governments have special rules to protect incumbent hospitals (both nonprofit and for-profit) from new competition, so that any new hospital (for-profit or not) cannot easily enter a region. Most states also exempt nonprofit hospitals from taxation, but do tax the for-profit hospitals. How does these policies affect the conditions you considered in the previous question?

i).The policies likely diminish market competition.

ii).The policies likely encourage the use of single pricing instead of price discrimination.

iii).The policies likely change the price elasticity of income groups.