Question

3. Vacation Island has only one hotel on the entire island. The demand schedule to rent a room for a-night at the hotel is given bellow. Price per night Quantity demanded $150 0 $130 1 $110 2 $90 3 $70 4 $50 5 $30 6 a) Calculate the hotel’s total revenue and its marginal revenue. Fill in the table below. Price Quantity Total Revenue Marginal Revenue $150 0 - $130 1 $110 2 $90 3 $70 4 $50 5 $30 6 b) The marginal costs are listed in the table below. What price will the hotel charge to maximize its profit? Explain. Quantity Marginal Cost 0 - 1 $40 2 $43 3 $50 4 $61 5 $76 6 $95 c) How many rooms will be rented, when the hotel maximizes its profit? Explain.

Answer 1

A.

quantity	price	TR	MR	MC
0	150	0
1	130	130	130	40
2	110	220	90	43
3	90	270	50	50
4	70	280	10	61
5	50	250	-30	76
6	30	180	-70	95

TR= P*Q

MR= change in TR/ Change in Q.

B.

$90.

Explanation:

any firm will maximize its profit where MR=MC. here at $90 price Marginal revenue and Marginal cost equals. so firm will charge $90 to maximize its profit.

C.

3 Rooms.

Explanation:

as discussed above in B, firm will maximize its profit by charging price and producing output where MR equals to MC. here at 3 rooms firm MR equals MC , so firm will rented out # rooms to maximize its profit.