A Model of Room Rentals in a Seasonal Hotel Illustrating Monopolistic Competition: Descriptive Approach

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.

Author(s) Details

Gerald Aranoff
Professor of Accounting, Bnei Brak, Israel.

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