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)

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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A) The town of Dimmsdale is a popular tourist destination. The problem is, the tourists are
not always considerate of the beautiful landscapes in and around Dimmsdale. Cleanup
efforts cost Dimmsdale $5005 a day. The town has decided that it would be only fair
to finance this by a "bed tax"-a per-room-per-night tax on every occupied tourist
accommodation 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, and
they 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 of
rooms demanded and p is the price per room per night in dollars. The marginal cost
of providing a room is c = $50 per night, 60% of which is labor costs (accruing to the
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).
(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)
Transcribed Image Text:A) The town of Dimmsdale is a popular tourist destination. The problem is, the tourists are not always considerate of the beautiful landscapes in and around Dimmsdale. Cleanup efforts cost Dimmsdale $5005 a day. The town has decided that it would be only fair to finance this by a "bed tax"-a per-room-per-night tax on every occupied tourist accommodation 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, and they 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 of rooms demanded and p is the price per room per night in dollars. The marginal cost of providing a room is c = $50 per night, 60% of which is labor costs (accruing to the 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). (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)
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