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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
Where P is price per unit and Q is total firm output (haircuts).
A. Calculate the firm's profit maximizing price/output combination.
B. Given the average cost of $20, calculate the monopolist's profit (loss.)
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