The state of Kentucky decides to develop a state park in a fairly remote location in eastern Kentucky, high in the mountains along a river that cuts a deep canyon and has abundant trails and overlooks. They anticipate that lots of outsiders (tourists) will want to visit the park, and some of them may even want to stay overnight. They decide that, rather than the state government owning and operating a hotel/lodge, they will outsource this part of the resort to a private-sector owner-operator. You see an opportunity here and decide to study demand and costs to determine whether this would be economically profitable. Here is what you discover. Demand is seasonal, with six months on-season and six months off-season. On-season demand is given by: Q= 20-P, where Q is the number of rooms demanded per night and P is the price of a room in dollars. Off-season demand is given by: Q= 10-P. [Note: the year is 1954, and a dollar would purchase much more in 1954 than in 2019.] Average variable costs, average total costs, and marginal costs are as illustrated in the attached diagram. Now for the question.

a. What price and quantity (number of rooms rented per night) will maximize profits or minimize losses in the off-season? In the on-season? What will daily profits or losses be in each period? Explain how you arrive at your answers, and carefully illustrate in the diagram.

b. Is this an economically viable proposition? If the state decides to auction off the rights to operate this monopoly hotel/lodge to the highest bidder, explain briefly how you would formulate your bid.

Diagram for Question \#2: ON SEASON Diagram for Question \#2: ON SEASON