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. Competition in the market for haircuts is consistent with which of the following statements?
A)Firms hiring nonbald barbers will have a cost advantage, leading to an increase in the demand for nonbald barbers.
B)All firms that hire only bald barbers will go out of business.
C)Firms hiring bald barbers will enter the market, increasing the demand for bald barbers.
D)Firms hiring nonbald barbers will enter the market, increasing the demand for nonbald barbers.

Question

Quizplus · Accepted Answer

In a competitive market for haircuts, firms seek to minimize costs. Since bald barbers have a lower equilibrium wage, firms hiring them can offer competitive prices, encouraging more firms to enter the market and hire bald barbers, thus increasing the demand for bald barbers.

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