A Model of Room Rentals in a Seasonal Hotel Illustrating Monopolistic Competition: Descriptive Approach
This paper illustrates monopolistic competition with a novel model of hotel rooms for daily rental that has peak and off-peak demand periods. There are two types of hotels, hotelK and hotelL, each having linear total costs with absolute capacity limits. HotelsK are static efﬁcient, since they operate with low MC. HotelsK open year-around and always at full capacity. HotelsL are output ﬂexible since they operate with low FC. HotelsL open in the peak-demand periods and shut down in offpeak demand periods. I prove mathematically two propositions with this model. Proposition I shows mathematically the conditions of investor indifference to choose between HotelsK and HotelsL. The signiﬁcance is to show a positive aspect of HotelsL, its output ﬂexibility, that some may overlook. Proposition II shows mathematically the conditions that shifting consumption of room rentals from offpeak to peak will add to consumer surplus. The signiﬁcance is to show the importance of increasing consumption in the peak period for consumer welfare over the cycle even at the cost of decreasing consumption in the off-peak periods . These two proposition are intuitive and common sense.
Professor of Accounting, Bnei Brak, Israel.
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