a. In early 2008, you purchased and remodeled a 120-room hotel to handle the increased number of conventions coming to town. By mid-2008, it became apparent that the recession would kill the demand for conventions. Now, you forecast that you will be able to sell only 10,000 room-nights, which cost $60 per room per night to service. You spent $25.00 million on the hotel in 2008, and your cost of capital is 10%. The current going price to sell the hotel is $20 million.

If the estimated demand is 10,000 room-nights, the break-even price is $ _______

per room, per night. (Hint: Remember that the cost of capital is the opportunity cost, or true cost, of making an investment.)

b.

A firm sells 1,000 units per week. Suppose the average variable cost is $20, and the average cost is $50.

In the short run, the break-even price is $_______

. In the long run, the break-even price is $________

Suppose the firm charges a price of $35 per unit.

Use the following table to indicate whether the firm will shut down or continue to produce in the short run and the long run.

Time	Continue to Produce	Shut Down
Short Run
Long Run