Calvin’s Barber Shops, Inc. has a monopoly on barbershop services
Calvin’s Barber Shops, Inc. has a monopoly on barbershop services provided on the south side of Chicago because of restrictive licensing requirements, and not because of superior operating efficiency. As a monopoly, Calvin’s provides all industry output. For simplicity, assume that Calvin’s operates a chain of barbershops and that each shop has an average cost-minimizing activity level of 750 haircuts per week, with Marginal Cost = Average Total Cost = $20 per haircut.,Assume that demand and marginal revenue curves for haircuts in the south side of Chicago market are,P = $80 – $0.0008Q,MR = $80 – $0.0016Q,Where P is price per unit, MR is marginal revenue, and Q is total firm output (haircuts).,A. Calculate the monopoly profit-maximizing price/output combination, and the competitive market long-run equilibrium activity level.,B. Calculate monopoly profits, and discusses the “monopoly problem” from a social perspective in this instance.