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 consumers do not discriminate between bald barbers and barbers with hair, then
A)all barbershops now earn a normal economic profit.
B)competition will ensure the difference in wages will persist.
C)barbershops that hire barbers with hair will be more profitable than those that don't.
D)barbershops that hire bald barbers will be more profitable than those that don't.

Question

Quizplus · Accepted Answer

If consumers do not discriminate between bald barbers and barbers with hair, barbershops that hire bald barbers (who have a lower wage) will have lower labor costs and thus be more profitable, assuming all other factors are equal.

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