3.1 Mariana is operating a studio house in Palma de Mallorca, Spain. Hundreds of hotels, motels, villas, apartments, and studio houses are offered as tourist accommodations in the area. Mariana opened her studio house the previous year and she rents an average of 12 studios each day over the whole season at €80 per studio per day. The cost of maintaining and running the studio house totals €960 per day.

a. How would you characterize the market structure of tourist accommodations in Palma de Mallorca? What characteristics lead you to this conclusion?

b. Is this industry in short- or long-run equilibrium? Use the data in the problem to support your conclusions.

c. Are there too many or too few tourist accommodations being supplied in La Palma de Majorca? Explain. 3.2 The following diagram shows the structure of cost and demand facing a monopolistically competitive firm in the short run.

a. Identify the following on the graph and calculate each one. i. Profit-maximizing output level ii. Profit-maximizing price iii. Total revenue iv. Total cost v. Total profit or loss

b. What is likely to happen in this industry in the long run?