A) The town of Dimmsdale is a popular tourist destination. The problem is, the tourists arenot always considerate of the beautiful landscapes in and around Dimmsdale. Cleanupefforts cost Dimmsdale $5005 a day. The town has decided that it would be only fairto finance this by a "bed tax"-a per-room-per-night tax on every occupied touristaccommodation room. Denote this tax (in dollars per room per night) by t.Dimmsdale has many small hotels, guest houses, and B&Bs. The providers of these(“hoteliers") can all be assumed to be in perfect competition with each other, andthey are all similar enough that tourists consider them perfect substitutes.The demand function for rooms is Q,(p)700 - 5p, where Q, is the number ofrooms demanded and p is the price per room per night in dollars. The marginal costof providing a room is c = $50 per night, 60% of which is labor costs (accruing to theworkers of Sunnyside). The total number of rooms available is fixed at Q = 400 (thiscannot be expanded in the time horizon considered in this problem).(1) Compute the equilibrium number of rooms occupied, Qo, and the priceper room per night, p; before the tax is put in place (i.e., when t = 0)

Profit maximizing quantity is such quantity where marginal revenue is equal to marginal cost.

The demand function for rooms is Q,(p) = 700 - 5p, where Q, is the number of rooms demanded and p is the price per room per night in dollars. The marginal cost of providing a room is c = workers of Sunnyside). The total number of rooms available is fixed at Q = 400 (this cannot be expanded in the time horizon considered in this problem). $50 per night, 60% of which is labor costs (accruing to the (1) Compute the equilibrium number of rooms occupied, Qo, and the price per room per night, p, , before the tax is put in place (i.e., when t = 0)

The demand function for rooms is Q,(p) = 700 - 5p, where Q, is the number of rooms demanded and p is the price per room per night in dollars. The marginal cost of providing a room is c = workers of Sunnyside). The total number of rooms available is fixed at Q = 400 (this cannot be expanded in the time horizon considered in this problem). $50 per night, 60% of which is labor costs (accruing to the (1) Compute the equilibrium number of rooms occupied, Qo, and the price per room per night, p, , before the tax is put in place (i.e., when t = 0)

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter3: Demand Analysis

Section: Chapter Questions

Problem 11E: Federal excise taxes on gasoline vary widely across the developed world. The United States has the...

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