Barber shops in a large city would seem to be an example of a competitive market

Question

Barber shops in a large city would seem to be an example of a competitive markets, since there are many sellers operating relatively small shops, each seller takes the price of haircuts as given, and the products (haircuts) are very similar between different shops. a. How could you argue that the barber shop market is not competitive? b. Is it possible that each barber shop could face a demand curve that is not perfectly elastic? c. How profitable do you expect barber shops to be in the long run?

Explanation / Answer

Answer.)

a.) Most barber shopshave effectively small geographic range and they do not attract consumers from very far away, and thus do not compete with the coffee shops across town

c.) Barber shops in long run would only be earning normal profits as presence of economic profits would certainly attract new barber shops in that area and this will reduce economic profits to Normal profits.

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