Question

Suppose you own small hotelarski resort. The left hand and of supply of rooms and the demand for rooms in the winter Spring Summer, and depicts your unit cost per room rented, these costs and the same for each the the band god EXHIBIT 7 15.25 Market Use the diagrams in Exhibit 7 to help you complete the following table. For the prot ply indicate whether your profits for the season are positive (), negativ o ams, SEASON PRICE NUMBER OF Room ROTED Winter Spring Summer Fall on fole b leaves Should you keep your hotel open all year During which seasons should you shut dowell How many rooms will you rent during the summer Explain your m oning Given that you earn negative profits in some seasons and positive prolis is the s h ow would you decide whether or not to remain in this industry is the long c.

only need b and c answered.

Answer 1

b)

The firm should not operate all round the year. A firm must continue to operate as long as it is able to recover the Average Variable cost ( AVC).

In the month of Summer, the price is below the AVC, hence, the firm must not operate during this period.

Firm will shutdown hotel in summer since here Price is less than average cost of production.

c)

Over the long run, the firm would not bear any loss. Loss can be faced only in the short-run only. Over the long run, if the firm suffers the loss, it will exit the market.

P = AC = MC is condition for sustaining in the market.