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II. (13 points) Please read the Wall Street Journal article reprinted below and written in the early stages of the Covid pandemic, titled "Hotels Furlough, Cut Thousands of Staff" (March 23, 2020) and answer the following questions. 1. Describe the four main characteristics of a perfectly competitive industry. Explain in what respects the hotel industry resembles/does not resemble a perfectly competitive industry. 2. Assume that the hotel industry sufficiently approximates a perfectly competitive industry such that we can select any firm in the industry (e.g., Marriott, Hilton, etc.) as a representative firm in the industry whose "output" (Q) is rented rooms and who charges a price for rooms (P) equal to the going market rate as determined by overall market supply and demand. Further assume that prior to the outbreak of the coronavirus, firms (hotels) were earning zero economic profit. Now suppose that the market demand suddenly and dramatically decreases due to the spread of Covid-19 (see article). Assuming the hotel industry is perfectly competitive, carefully explain in words how the decreased demand affects: a. The price of the product in the short run and long run b. Firm and industry output in the short run and long run c. Firms' employment of labor in the short run and long run d. The economic profits of firms in the short run and the long run e. Whether or not the firm should shut down in the short run or leave the industry in the long run Your answer will be evaluated according to: 1) how clearly you explain the short run and long run dynamics of how firms adjust to a decrease in demand in a perfectly competitive industry and 2) how well you relate what is happening in the hotel industry (as described in the article) to your answer.Hotels 3/23/ 20 Hotels Furlough, Cut Thousands of Staff BY CRAIG KARMIN ers have called off events and probably won't be coming back. Furlough AND ESTHER FUNG "This is incredible hardship," vacationers have put plans on An immediate concern is Mr. Bortz said. "Any industry hold. Hotels are suffering the Ashford's $4 billion to $5 bil- where human contact is in- Marriott International Inc., brunt of this sudden evaporalion in debt. Some payments volved has been decimated." Thousands the world's largest hotel com- tion of travel, which is wiping are due next month, Mr. Ben- With so little business, it pany, and a growing number of out in a matter of weeks all the nett said, and he doesn't expect makes no sense to keep operat- hotel owners are furloughing Continued from page BI profits many companies had to be able to pay all of them. ing, executives say. Mr. Bortz tens of thousands of workers or piled up in the past few years. more properties with no known slashing staff to steer their "Every single U.S. hotel will de- expects most of his hotels that reopen date, they feel they have Some lodging companies are fault on its debt in the next 30, are still open to suspend opera- little choice but to reduce staff companies through the corona- taking even more drastic steps maybe 60 days," he said. "It's a tions over the next five days. virus pandemic. and hope the company can re- than Marriott, furloughing or disaster that's snowballing." Hilton Worldwide Holdings Lodging owners across the letting go more than 9 in 10 main afloat. Another hotel owner. Peb- country are being forced to On Sunday, Rick Takach, Inc. and Hyatt Hotels Corp. are employees in some cases, blebrook Hotel Trust, is fur- make similar calculations. With also furloughing many employ- Ashford Inc., the Dallas- CEO of Vesta Hospitality, owner loughing about 90% to 95% of occupancy levels plunging by and operator of 17 hotels, said ees, the hotel companies said in based firm that owns 130 hotels its 8,000 employees, CEO Jon the day, it is a challenge for ho- he has concluded that cuts to statements on Sunday, as most across the U.S., is laying off or Bortz said. He has closed about teliers to make payroll, let travel plans world-wide grind his hotel-management company furloughing 95% of 7,000 em- half the company's 54 hotels; alone pay other expenses and to a halt. haven't been enough. "So, ployees, Chief Executive Monty occupancy levels at the ones meet debt obligations, they deeper cuts are needed," he A spokeswoman for Marriott Bennett said. He expects about that remain open have dwin- said. And as they opt to close said. "That means either much confirmed that the company is one-third of those employees dled to the single digits. Please turn to page B2 lower salaries and hours or the furloughing about two-thirds of elimination of personnel. That its 4,000 corporate employees is a decision I am trying to at the company's Bethesda, make today or tomorrow." Md., headquarters. Marriott is Hotel workers have been also furloughing about two- stunned at the suddenness with thirds of its corporate staff which they have been sent off. abroad, though the spokes- Shelby Halpin, who worked as a woman said she couldn't imme- guest-services specialist and a diately provide the number of guide in a ski rest in Big Sky, Marriott corporate overseas Mont., said she was told on jobs. Tuesday that she no longer had Those actions follow Mar- a job after the resort closed. riott's decision to begin fur- "The next day I put every- loughing what the company ex- thing I owned into my jeep and pects to be tens of thousands of left,"said Ms. Halpin. "We were hotel staff-from managers to kicked out of the place. It was housekeepers-while it ramps so surreal." up hotel closings across the Marriott Chief Executive globe. Arne Sorenson said in a video The hospitality industry has message to his employees on been upended by the collapse Thursday that Marriott busi- in global travel as governments HUR PIKE/REUTERS ness is running about 75% be- imposed travel restrictions in low normal levels, making this response to the pandemic. period more devastating than Companies have halted busi- any other in the history of the ness trips, conference organiz- nearly century-old hotel com- The actions follow Marriott's decision to furlough hotel staff. The company's Sheraton in Dubai. pany. He said that the financial impact was worse than the post-Sept. 11 2001, period and financial crisis combined
