P12.5 Monopoly Price/Output Decision. The Hair Stylist, Ltd., has a monopoly in
the College Park market because of restrictive licensing requirements, and
not because of superior operating efficiency. As a monopoly, the Hair Stylist
provides all industry output. For simplicity, assume that the Hair Stylist
operates a chain of salons and that each shop has an average costminimizing
activity level of 750 hair stylings per month, with Marginal Cost = Average
Total Cost = $20 per styling.
Assume that demand and marginal revenue curves for hair stylings in
the College Park 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
(stylings).