Scenario 19-4 Assume That the Labor Market for Barbers Is Competitive and Competitive

question 214

Multiple Choice

Scenario 19-4
Assume that the labor market for barbers is competitive and that it is differentiated into two groups: barbers who are bald (or going bald) and those who have a full head of hair. Assume that the barbers in this market have identical hair-cutting ability, regardless of whether they are bald or not. Currently, the equilibrium wage in the bald barber market is lower than that in the nonbald market. Further assume that the market for haircuts is competitive.
-Refer to Scenario 19-4. If some consumers in the market for haircuts have a strong preference for having their hair cut by a barber who is not going bald, then

• A)the difference in wages will eventually disappear since a haircut is a homogeneous good.
• B)barbershops that hire barbers with hair will be able to charge a higher price for a haircut to those consumers who have a strong preference for barbers with hair.
• C)barbershops that hire barbers with hair will always be much more profitable.
• D)barbershops that hire bald barbers will always be much more profitable.

---

Definitions:

Return on Investment

A performance measure used to evaluate the efficiency or profitability of an investment relative to its cost.

Return on Investment

A financial ratio that calculates the percentage gain or loss on an investment relative to the cost of the investment, indicating the efficiency of the investment.

Investment Turnover

The ratio of sales to invested assets.

Profit Margin

A financial metric, calculated as net income divided by revenue, that indicates the percentage of sales that exceeds the costs of goods sold.