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There are four consumers willing to pay the following amounts for haircuts:Jerry: $7Oprah: $2Sally Jessy: $8Montel: $5There are four haircutting businesses with the following costs:Firm A: $3Firm B: $6Firm C: $4Firm D: $2Each firm has the capacity to produce only one haircut. For efficiency, how many haircuts should be given? Which businesses should cut hair, and which consumers should have their hair cut? How large is the maximum possible total surplus?
The figure below shows supply and demand curves for haircuts. Supply equals demand at a quantity of three haircuts and a price between $4 and $5. Firms A, C, and D should cut the hair of Ellen, Jerry, and Phil. Oprahs willingness to pay is too low and firm Bs costs are too high, so they do not participate. The…

imum total surplus is the area between the demand and supply curves, which totals $11 ($8 value minus $2 cost for the first haircut, plus $7 value minus $3 cost for the second, plus $5 value minus $4 cost for the third).



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