You spent 20 million on the hotel in 2008 and your cost of capital is 10 The

# You spent 20 million on the hotel in 2008 and your

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20,000 room-nights that cost on average \$50 per room per night to service. You spent \$20 million on the hotel in 2008, and your cost of capital is 10%. The current going price to sell the hotel is \$15million. What is your breakeven price? The first step I took was to identify the break-even price. I identified, fix cost: \$20,000,000, variable cost: (20,000*\$50 = \$1,000,000), capital (20,000,000*10%=2,000,000) and the selling price is 15,000,000. I used the FC*Capital= (20,000,000*10%= 2,000,000) and rooms per night (20,000*\$50 = \$1,000,000) when added up comes out to (2,000,000+1,000,000= 3,000,000). To get the break-even price per unit, I took the (3,000,000) and divided it by the number of rooms (20,000). (3,000,000 / 20,000 = \$150 price per unit). 20,000,000*10%= 2,000,000 20,000*50= 1,000,000 1,000,000+2,000,000= 3,000,000 3,000,000/20,000= \$150
3. George has been selling 5,000 T-shirts per month for \$8.50. When he increased the price to \$9.50 he sold only 4,000 T-shirts. What is the demand elasticity? If his marginal cost is \$4 per shirt, what is his desired markup and what is his initial actual markup? Was raising the price profitable? Initial price for t-shirts= \$8.5 , related sales = 5000 T-shirts, the change in price for t-shirts= \$9.5, Related sales= 4000 T-shirts. (5000-4000)/(5000+4000) = 1000/9000= .111 (9.5-8.5) / (8.5+9.5) = .056. Once we have that I divided .11 / .056 = 2 (elastic demand because if you increase the price the profits go down) For Desired Mark-up = 1/1.964 = 0.5092. For the Initial Mark-up the equations = (P-MC)/P and with the question I filled in the equation. P= \$8.5 MC= \$4. Coming out to = (8.5-4)/8.5, then = 4.5/8.5 after computing that division problem, we come to the Initial actual Mark-up of = 0.5294. Raising the price will not turn a profit. It is elastic Desired mark up =0.5092 Initial actual mark up =0.5294 Raising the price was not profitable 4. Suppose there are 10 individuals with values as follows: {10, 8, 8, 8, 8, 8, 8, 4, 0, 0}. Construct a demand schedule (table) and calculate the marginal revenue of the second unit sold.