All along the central and northern coast of New south Wales there are motels offering basis accommodation –some of it within easy walking distance of the beach. During the school holidays and at other peak times the room rate is over $150 a night. But in the off-season, when the kids are back at school, one can find rooms for as little as $60 a night. Assume the average fixed cost of a room per night, including local government rates, insurance, taxes and depreciation, is $75. The average guest-related cost for a room each night, including electricity, water, cleaning service and linen, is $40. Would these motels be better off renting rooms for $60 in the off season or shutting down

All along the central and northern coast of New south Wales there are motels offering basis accommodation –some of it within easy walking distance of the beach.  During the school holidays and at other peak times the room rate is over $150 a night. But in the off-season, when the kids are back at school, one can find rooms for as little as $60 a night.  Assume the average fixed cost of a room per night, including local government rates, insurance, taxes and depreciation, is $75. The average guest-related cost for a room each night, including electricity, water, cleaning service and linen, is $40. Would these motels be better off renting rooms for $60 in the off season or shutting down until the school holidays come round again? Explain your answer with proper graph/s.                (6 Marks)

 

  1. Give two examples of price discrimination. In each case, explain why the monopolists choose to follow this business strategy.  (2 Marks)

 

 

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