The Hilton Hotel chain serves both business and vacation travelers. $D _ { \text {Business } }$ and $M R _ { \text {Business } }$ represent the demand and marginal revenue for business travelers,while $D _ { \text {vacation } }$ and $M P _ { \text {Vacation } }$ are the demand and marginal revenue for vacation travelers.If marginal cost decreases to the point that total marginal revenue (MR_T is not shown in the figure)for Hilton at the profit-maximizing level of total output is $40,what price should the Hilton charge BUSINESS travelers?

Question

Quizplus · Accepted Answer

To maximize profit, the Hilton should charge a price where marginal cost equals marginal revenue for each group of travelers. At the profit-maximizing output level, the MRS1U1B1T (total marginal revenue) is equal to the marginal cost which is $40.

From the graph, we can see that the demand curve for business travelers intersects the marginal revenue curve at a quantity of 200 rooms. At that point, the marginal revenue for business travelers is $80. Since the MRS1U1B1T is $40 at the profit-maximizing output level, the marginal revenue for vacation travelers must be $40.

Therefore, we need to look for the point on the demand curve for business travelers where the marginal revenue is $80 and the quantity demanded is such that the MRS1U1B1T is $40. This point is at a price of $100. Therefore, the Hilton should charge $100 to business travelers to maximize profit.

The correct answer is (C) $100.

The Hilton Hotel Chain Serves Both Business and Vacation Travelers DBusiness D _ { \text {Business } }DBusiness ​

The Hilton Hotel Chain Serves Both Business and Vacation Travelers $D _ { \text {Business } }$