4. Marginal analysis and profit maximization Suppose Maria gives haircuts on Sat

Question

4. Marginal analysis and profit maximization Suppose Maria gives haircuts on Saturdays to make extra money. She is the only person in town cutting hair on Saturdays and therefore has some market power. Assume that she does not incur fixed costs and that the only significant variable cost to Maria in giving haircuts is her time. As she gives more haircuts, Maria must increasingly forgo other valuable Saturday activities. For example, if she gives one haircut, she forgoes reading the paper after breakfast. If she gives two haircuts, she gives up reading the paper, sleeping an extra half-hour, and so on. Maria's clients are a varied group willing to pay between $16.00 and $28.00 for a haircut. Assume that Maria cannot price discriminate-that is, charge different clients different prices. If Maria charges $28.00 per haircut, she will have one client per week; if she charges $24.00, she will have two; if she charges $20.00, three, and so forth. The following table contains data on the revenues and costs of Maria's haircut business as a function of her price-quantity choice. (The costs are based on the value of Maria's alternative activities, in dollar terms. For example, the total cost of the first haircut is $4-the value Maria places on reading the newspaper after breakfast.) Also, marginal profit is the additional profit Maria earns from producing one more unit of output. Marginal profit is positive when a rise in output increases total profit and negative when a rise in output causes total profit to fall Fill in the missing cells of the table and then use them to answer the questions that follow. Total Revenue Marginal Revenue Total Cost (Dollars per Output Marginal Profit Price (Dollars Margina Co Profit (Haircuts per (Dollars per Dollars per Dollars per (Dollars per Dollars per week) haircut) 28.00 20.00 12.00 4.00 8.00 8.00 24.00 12.00 4.00 28.00 24.00 20.00 18.00 16.00 28.00 48.00 60.00 4.00 12.00 20.00 36.00 56.00 24.00 36.00 40.00 8.00 20.00 12.00 80.00 24.00 On the following graph, use the biue points (circle symboi) to plot Maria's total revenue curve, use the orange points (square symbol) to piot her total cost curve, and use the purple points (diamond symboi) to plot her total profit curve. Be sure to graph from left to right, starting with zero haircuts and ending with five. Line seaments will automatically connect the points

Explanation / Answer

Total revenue at 4 units of output= 4 multiplied by 18=72.note each unit now sells at 18

Marginal revenue =72-60=12.note marginal revenue is equal to change in revenue when output increases by one unit.

Marginal cost =36-20=16.note marginal cost is equal to change in cost as output increases from 3 to 4 units

Profit =total revenue-total cost at 4 units of output=72-36=36.note profit is always equal to total revenue-totalcost

Can answer only 4 parts according to chegg policy. Please send other parts as separate question

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