Suppose that Andrew’s Hotel will be open for only two days: a peak season day and an off-peak day. Andrew has two types of costs: room construction costs and guest service costs. The cost of servicing any guest is 50 dollars. The cost of building a room is 400 dollars, but rooms can be used for both types of day. Inverse demand for peak days is P = 1000 −Q, and demand for off-peak is P = 500 −2Q. What prices should Andrew, who is looking to maximize his profits, set, and how many rooms should he build?
Suppose that Andrew’s Hotel will be open for only two days: a peak season day and an off-peak day. Andrew has two types of costs: room construction costs and guest service costs. The cost of servicing any guest is 50 dollars. The cost of building a room is 400 dollars, but rooms can be used for both types of day. Inverse demand for peak days is P = 1000 −Q, and demand for off-peak is P = 500 −2Q. What prices should Andrew, who is looking to maximize his profits, set, and how many rooms should he build?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Suppose that Andrew’s Hotel will be open for only two days: a peak season day and an
off-peak day. Andrew has two types of costs: room construction costs and guest service costs. The
cost of servicing any guest is 50 dollars. The cost of building a room is 400 dollars, but rooms can
be used for both types of day. Inverse
off-peak is P = 500 −2Q.
What prices should Andrew, who is looking to maximize his profits, set, and how many rooms
should he build?
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