Hotel Nemo is the only under-sea hotel in the nation. The table sets out the dem

Question

Hotel Nemo is the only under-sea hotel in the nation.

The table sets out the demand schedule for hotel rooms and the cost scheudle for running the hotel.

Calculate Hotel Nemo's profit-maximizing price, output and economic profit if it charges a single price for all rooms.

1. Hotel Nemo's profit-maximizing output is _____ rooms a night.

2. Hotel Nemo's profit-maximizing price is $ _____ a room. (Answer to 2 decimal places)

3. When Hotel Nemo produes the progit-maximizing oupit and charges the profit-maximizing price, economic profit it $_____. (If the firm incurs an economic loss, indicare the loss with a minus sign. If the firm makes an econimic profit do not include a plus sign)

Price(dollars per room) Quantity (rooms per night) total cost (dollars per night) 10 0 1,000 9 100 1,500 8 200 2,000 7 300 2,500 6 400 3,000 5 500 3,500 4 600 4,000 3 700 4,500 2 800 5,000

Explanation / Answer

Ans:

Profit maximizing level of output is where marginal revenue equal to marginal cost.

Table

1) Hotel Nemo's profit-maximizing output is 300 rooms a night.

2) Hotel Nemo's profit-maximizing price is $7 a room.

3) Economic Loss = $2100 - $2500

= -$400

Price Quantity Total revenue marginal revenue Total cost marginal cost 10 0 0 0 1000 1000 9 100 900 900 1500 500 8 200 1600 700 2000 500 7 300 2100 500 2500 500 6 400 2400 300 3000 500 5 500 2500 100 3500 500 4 600 2400 -100 4000 500 3 700 2100 -300 4500 500 2 800 1600 -500 5000 500

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