ECO 112 Written Assignment 2 Problem

1. There are four consumers willing to pay the following amount for haircuts:
Jerry: $7 Oprah: $2 Sally Jessy $8 Montel $5

There are four haircutting firms with the following costs:
Firm A: $3 Firm B: $6 Firm C: $4 Firm D: $2

Graphically, the demand and supply curve look like:

(a) each firm can produce only one haircut. For efficiency, the equilibrium price for haircuts should be between ____________ and _________________
(Hint: a deal can be made only if a consumer is willing to pay a price higher than the cost of producing that good)

(b) given answer of (a), consumer(s)_______________________________________ should not have hair-cut.

(c) Suppose the equilibrium price for haircuts is $4.5. Then the consumer surplus for Montel equals _______________

(d) Suppose the equilibrium price for haircuts is $4.5. Then the producer surplus for Firm A equals _______________

(e) given answer of (a), the maximum possible total surplus equals_______________