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(solution) The demand for haircut at Andy's Hair Salon has been estimated as


The demand for haircut at Andy's Hair Salon has been estimated as follows: Demand Curve (D1) P = 15 - 0.15 Qd Where Q = the number of haircuts per week, and P = the price per haircut. Andy is considering raising his price above the current price of $10. He is unwilling to raise the price if the price hike will cause her revenues to fall.

A.) Compute the elasticity of demand at the current price and discuss whether Andy should raise the price of haircut above $10? Justify your answer.

B.) Suppose after a successful advertising, demand for Andy's haircut changes to: New Demand Curve (D2) P = 22 - 0.22 Qd. Starting from the current price of $10, should Andy raise the price of haircut? Why or why not? Use the concept of elasticity to justify your answer.

 


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Sep 13, 2020

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