You are a manager at a hotel in a popular tourist destination. Assume that the market for hotel rooms in the city is perfectly competitive. a) List two characteristics of a perfectly competitive market and describe what they mean on the market for hotel rooms. b) You estimated the average total cost and the average variable cost for every level of output (quantity of hotel rooms). What else would you need to estimate to make production decisions (i.e., how many rooms are getting prepared for the clients and how many rooms are locked and not constantly being used)? c) Assume you made all the necessary calculations you described in part (b). How will you make the production decision?
You are a manager at a hotel in a popular tourist destination. Assume that the market for hotel rooms in the city is perfectly competitive. a) List two characteristics of a perfectly competitive market and describe what they mean on the market for hotel rooms. b) You estimated the average total cost and the average variable cost for every level of output (quantity of hotel rooms). What else would you need to estimate to make production decisions (i.e., how many rooms are getting prepared for the clients and how many rooms are locked and not constantly being used)? c) Assume you made all the necessary calculations you described in part (b). How will you make the production decision?
Chapter4: Utility Maximization And Choice
Section: Chapter Questions
Problem 4.2P
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![You are a manager at a hotel in a popular tourist destination. Assume that the market for
hotel rooms in the city is perfectly competitive.
a) List two characteristics of a perfectly competitive market and describe what they
mean on the market for hotel rooms.
O
O
O
b) You estimated the average total cost and the average variable cost for every level of
output (quantity of hotel rooms). What else would you need to estimate to make
production decisions (i.e., how many rooms are getting prepared for the clients and
how many rooms are locked and not constantly being used)?
c) Assume you made all the necessary calculations you described in part (b). How will
you make the production decision?
d) You observe the average price per hotel room per night to be...
...below the minimum average variable cost [variant 1].
...above the minimum average variable cost but below the minimum average total cost
[variant 2].
...above the minimum average total cost [variant 3].
Will you keep the hotel open in the short run? Why?
e) On the graph below [excluded]:
Label the axes and the curves.
Show the price level (a horizontal line).
Show how many rooms you will get prepared for the clients (your production
decision) in the short run.
Shade the hotel's profit in the short run and state whether it's positive or
negative.
f) Will you keep the hotel open in the long run? Why?
g) How will your production decision in the long run depend on the fact that the hotel
was recently renovated with a $750,000 investment?
●
●](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe6b69e78-cd3e-4beb-b37d-327a5afb5345%2F213e2941-bf9c-4ea7-9cee-196d80fd65d3%2F7oabsgt_processed.png&w=3840&q=75)
Transcribed Image Text:You are a manager at a hotel in a popular tourist destination. Assume that the market for
hotel rooms in the city is perfectly competitive.
a) List two characteristics of a perfectly competitive market and describe what they
mean on the market for hotel rooms.
O
O
O
b) You estimated the average total cost and the average variable cost for every level of
output (quantity of hotel rooms). What else would you need to estimate to make
production decisions (i.e., how many rooms are getting prepared for the clients and
how many rooms are locked and not constantly being used)?
c) Assume you made all the necessary calculations you described in part (b). How will
you make the production decision?
d) You observe the average price per hotel room per night to be...
...below the minimum average variable cost [variant 1].
...above the minimum average variable cost but below the minimum average total cost
[variant 2].
...above the minimum average total cost [variant 3].
Will you keep the hotel open in the short run? Why?
e) On the graph below [excluded]:
Label the axes and the curves.
Show the price level (a horizontal line).
Show how many rooms you will get prepared for the clients (your production
decision) in the short run.
Shade the hotel's profit in the short run and state whether it's positive or
negative.
f) Will you keep the hotel open in the long run? Why?
g) How will your production decision in the long run depend on the fact that the hotel
was recently renovated with a $750,000 investment?
●
●
![O
O
0 0
You are monitoring changes on the market for ice cream. You noticed that...
...both the price of ice cream and the quantity traded decreased [variant 1].
...the price of ice cream increased, while the quantity traded decreased [variant 2].
...the price of ice cream decreased, while the quantity traded increased [variant 3].
...both the price of ice cream and the quantity traded increased [variant 4].
Analyze the observed changes.
a) On the supply-and-demand diagram, which curve shifted and what was the direction
of the shift?
O
b) Suggest three possible events that could have caused this shift of the curve. For each
event, explain why it would lead to this shift.
c) What affects the slope of the curve that shifted?
d) On the graph below [excluded]:
Label the axes.
●
Graph the demand curve and the supply curve. Make sure you label them.
Graph the shift of the curve and label the new curve.
Label the old equilibrium and the new equilibrium (either label the point or its
coordinates).
e) On your graph, shade the area corresponding to the change in [see below] and state
whether [see below] increased or decreased because of the shift of the curve.
Producer surplus [variants 1 and 4].
O Consumer surplus [variants 2 and 3].](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe6b69e78-cd3e-4beb-b37d-327a5afb5345%2F213e2941-bf9c-4ea7-9cee-196d80fd65d3%2F3xvxef_processed.png&w=3840&q=75)
Transcribed Image Text:O
O
0 0
You are monitoring changes on the market for ice cream. You noticed that...
...both the price of ice cream and the quantity traded decreased [variant 1].
...the price of ice cream increased, while the quantity traded decreased [variant 2].
...the price of ice cream decreased, while the quantity traded increased [variant 3].
...both the price of ice cream and the quantity traded increased [variant 4].
Analyze the observed changes.
a) On the supply-and-demand diagram, which curve shifted and what was the direction
of the shift?
O
b) Suggest three possible events that could have caused this shift of the curve. For each
event, explain why it would lead to this shift.
c) What affects the slope of the curve that shifted?
d) On the graph below [excluded]:
Label the axes.
●
Graph the demand curve and the supply curve. Make sure you label them.
Graph the shift of the curve and label the new curve.
Label the old equilibrium and the new equilibrium (either label the point or its
coordinates).
e) On your graph, shade the area corresponding to the change in [see below] and state
whether [see below] increased or decreased because of the shift of the curve.
Producer surplus [variants 1 and 4].
O Consumer surplus [variants 2 and 3].
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