Question

Suppose that the cost of operating a 100-room hotel for a night is $10,000, whether or not there are any guests are the hotel. Suppose that there are 5 empty rooms for tonight. If the marginal cost of operating one room for one night is $30 and the customer is willing to pay $60 for the night, the hotel manager should: Correct A. rent the room because the marginal benefit exceeds the marginal cost.
B. rent the room because the marginal benefit exceeds the average cost.

C. not rent the room because the marginal benefit is less than the marginal cost.

D. not rent the room because the marginal benefit is less than the average cost.

Answer 1

Answer:

A. rent the room because the marginal benefit exceeds the marginal cost.

Explanation:

As the marginal benefit of renting out a room exceeds the marginal cost of operating the same room (MB>MC), its means that we gain from operating each room when we compare marginal benefit with marginal cost. In this situation, the resource of the hotel will be more efficiently utilised when more rooms are rented out.