Suppose an ocean-front hotel rents rooms. In the winter, demand is: with margina
ID: 1216185 • Letter: S
Question
Suppose an ocean-front hotel rents rooms. In the winter, demand is: with marginal revenue of However, in the summer, demand is: with marginal revenue of P1-110-1Q1 MR1 110-2Q P2-260-102 MR2 260-202 Furthermore, suppose the hotel's marginal cost of providing rooms is MC 51Q, which is increasing in Q due to capacity constraints. Suppose the hotel engages in peak-load pricing. During the winter, the profit-maximizing price is sand the profit-maxizing quanttyrooms. (Enter numeric responses rounded to two decimal places,)Explanation / Answer
During Winter
The equilibrium condition is: MR1 = MC
=> 110 - 2Q = 5 +1Q
=> 3Q = 105
=> Q = 105 /3 = 35 (profit maximizing quantity)
and, P = 110 - 1Q = 110 - 35 = $75 (profit maximizing price)
During Summer
The equilibrium condition is: MR2 = MC
=> 260 - 2Q = 5 +1Q
=> 3Q = 255
=> Q = 255 / 3 = 85 (profit maximizing quantity)
and, P = 260 - 1Q = 260 - 85 = $175 (profit maximizing price)