Question

A hotel serves both business and vacation travelers and wishes to price-discriminate. The hotel managers can accurately identify and separate submarkets.

The hotel faces the following cost : MC = AC = 20

Demand by business travelers:        Qb = 400 -5Pb

Demand by vacationer:                     Qv = 400 -10 Pv

3.1. Derive MR for this firm

3.2. What is the profit-maximizing number of business travelers to serve? Vacationers?

3.3. What price should be charged to each type of travelers? Calculate total revenue generated by each submarket.

3.4. Calculate the price elasticity of demand for each submarket based on your answer to 3.3.

3.5. How much profit does the hotel earn?

Answer 1