You have a dream job at The Zen Hotel, which has a monopoly in an area of Blue Rock State Park, protected by a historic license. There’s all-day access for employees to recreational facilities, and even the breakfast buffet is free! One the other side of the park, the Nirvana Lodge also holds a solitary license, and the owners have engaged in talks to merge the two properties under one company. As you return from a dip in the infinity pool, the manager treats you to coffee and desserts. “We’re going through with this merger thing, and we have to upload next year’s prices to the booking website. We don’t want one of the hotels to look ‘cheap,’ so we’ll keep charging the same price for both. But we were thinking of going a bit more premium, now that we run both.” At present, the Zen and Nirvana both sell at $480 per night per room. You have access to some reports by recently hired consultants. They found that the Zen Hotel enjoys a market demand of qZ = 2,800 - 10P/3, where qZ is annual stays, and P is the price that the Zen Hotel charges per night. The Nirvana Lodge’s demand is qN = 1,400 - 5P/3. The total cost of accommodating q stays is C = 120qi at each hotel. With your feet on your $5,000 desk and a caramel on your tongue, you leisurely crunch the numbers and then give your manager a call. You explain that, for both hotels together: A. $480 is still the right price. B. We should cut the price in half, to $240. C. It is indeed profitable to raise the price a bit, to $600. D. Double the price, to $960, is the way to go!
You have a dream job at The Zen Hotel, which has a monopoly in an area of Blue Rock State Park, protected by a historic license. There’s all-day access for employees to recreational facilities, and even the breakfast buffet is free! One the other side of the park, the Nirvana Lodge also holds a solitary license, and the owners have engaged in talks to merge the two properties under one company. As you return from a dip in the infinity pool, the manager treats you to coffee and desserts. “We’re going through with this merger thing, and we have to upload next year’s prices to the booking website. We don’t want one of the hotels to look ‘cheap,’ so we’ll keep charging the same
A. $480 is still the right price.
B. We should cut the price in half, to $240.
C. It is indeed profitable to raise the price a bit, to $600.
D. Double the price, to $960, is the way to go!
Step by step
Solved in 2 steps
