Friday, March 10, 2006

CS/PS

Okay, this one was giving people grief today. My hint is to graph it out. Basic supply & demand. And yes, Nicki, I *was* confusing you today - I realized why during lunch. I was looking at it upside down (I know, it's terrible of me). Make sure to graph the correct quantity and price - with demand, at the lowest price there will be more than one person wanting it. In supply, at the highest price there will be more than one person wanting to produce it. That's the basics of the Laws of Supply & Demand.

There are four consumers willing to pay the following amoutn for haircuts:

Jerry-$7, Oprah-$2, Sally Jessy-$8, Montel-$5

There are four haircutting businesses with the following costs:

Firm A:$3, Firm B:$6, Firm C:$3, Firm D: $2

Each firm has the capacity to give only one haircut. For efficiency, how many haircuts should be given? Which businesses will cut hair, and which consumers should have their hair cut?

4 comments:

forsnic said...

this is the most evil question ever. so we were doing it backwards because u were sitting across from us therefore making the demand curve increasing!!??? lol im jk. thats ok. i will try to figure it out and write back. grrr

KM said...

I know - I'm an awful person. I have no excuses.

Well, I have some excuses, but they're not good ones.

Reid said...

Okay, I'm gonna try to talk this out, so the message will be lengthy. Here we go. Oprah reaches a point of equilibrium because her consumer surplus is equal to the producer surplus. Montel could have a producer surplus of $3 with Firm D or $2 with Firm C and A, or have to deal with a producer surplus of $1 with firm B. Jerry would have a cosumer surplus of $5 with Firm D $4 with firm C and A and $1 with firm B. Sally Jesse has the most variety to choose from, with a largest consumer surplus over everyone. So... The most efficient haircut for the company and consumer would be with Oprah, because the consumer surplus is equal to the producer surplus. Montel would get a hair cut from either firm A or C because he would recieve a consumer surplus of $2, Jerry would get a hair cut from firm A, or C because he would get a consumer surplus of $4, Sally would get a haircut from firm B because she would enjoy a consumer surplus of $2. So four haircut should be given, each firm will cut hair, and all consumers will have a haircut. THIS QUESTION IS AWESOME!!!!!!!!!!!!!!

KM said...

This is a tough question. Very tough.

You don't need to tell who will get their haircut by which firm - in fact, you can't answer that, you don't have the information.

And the second thing...not all people will get their hair cut, and not all firms will cut hair.

So who won't get their hair cut, and why?

Who won't cut any hair, and why?