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28 September, 00:30

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 Charles: $50 Gilberto: $35 Juanita: $25 Dina: $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, should be given. Which businesses should cut hair

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  1. 28 September, 01:09
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    Answer: For efficiency 1 hair cut should be given.

    Firm A should cut hair, because the marginal cost is lower than the willingness to pay.

    Explanation:

    Given dа ta:

    Consumers' Willingness to Pay,

    Charles: $50

    Gilberto: $35

    Juanita: $25

    Dina: $40

    Marginal cost,

    Firm A: $25

    Firm B: $40

    Firm C: $30

    Firm D: $45

    The marginal willingness to pay is higher than the marginal cost till the first haircut. So, for efficiency, 1 haircuts should be given.

    Firm A should cut hair, because the marginal cost is lower than the willingness to pay.
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