Question

8. Problems and Applications Q8 There are four consumers willing to pay the following amounts for haircuts, and there are four haircutting businesses with the following costs:

	Consumers' Willingness to Pay
Andrew:	$50
Darnell:	$35
Eleanor:	$25
Beth:	$40

	Firms' Costs
Firm A:	$25
Firm B:	$40
Firm C:	$30
Firm D:	$45

Each firm has the capacity to produce only one haircut.

For efficiency, (0,1,2,3,4, haircut)  should be given.

Which businesses should cut hair? Check all that apply.

Firm A

Firm B

Firm C

Firm D

Which consumers should have their hair cut? Check all that apply.

Andrew

Beth

Darnell

Eleanor

The maximum possible total surplus is $________.

Answer 1

solution: Loto oldie Given that four consumers willing to pay and firm's costs are (consumer A, D, E, B, willing to pay | 850 835 $25 $40 Firms] AlBlco costs $25 $40 | $30 $45 | The below graph Willingness to pay ness to offer shows the and firms' consumer's cost willing

TELU FirmD Firme o Equilibrium cost of hair cut. LLLLLLLLLLLLLLL Firmk LEI FIRMA T Quantity From the above graph it can be observed that a hair cuts should be given because beyond this consumer willingness to pay is less than the producers willingness to offer. Firms charging $25 $30 should cut the hair. That is Firm A & firm'c should cut the hair. Fino's cost are too high while consumer E's willingness to pay is too low, so They are not part of this situation.

The maximum possible Total surplus is calucculated below. surplus: (50-95)+(40-30). = 25 +10 = 35 Toral surplus = $35. - The