Myrtle Beach, South Carolina, is lined with virtually identical motels. Summertime rates run about $250 a night. During the winter, rooms rent for as little as $70 a night. Assume the average fixed cost of a room per night, including insurance, taxes, and depreciation, is $30. The average guest-related cost (average variable cost) for a room each night, including cleaning service and linens, is $65. The average total cost, which is the sum of the average fixed cost ($30) and the average variable cost ($65), is $95. During the winter, these hotels should shut down until summer because they cannot cover all of their fixed costs.

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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Myrtle Beach, South Carolina, is lined with virtually identical motels. Summertime rates
run about $250 a night. During the winter, rooms rent for as little as $70 a night.
Assume the average fixed cost of a room per night, including insurance, taxes, and
depreciation, is $30. The average guest-related cost (average variable cost) for a room
each night, including cleaning service and linens, is $65. The average total cost, which
is the sum of the average fixed cost ($30) and the average variable cost ($65), is $95.
During the winter, these hotels should
shut down until summer because they cannot cover all of their fixed costs.
continue to operate despite operating at a loss because they are covering all of
their variable cost and a portion of their fixed costs.
continue to operate because they are earning a positive economic profit.
shut down until summer because they are currently operating at a loss.
Transcribed Image Text:Myrtle Beach, South Carolina, is lined with virtually identical motels. Summertime rates run about $250 a night. During the winter, rooms rent for as little as $70 a night. Assume the average fixed cost of a room per night, including insurance, taxes, and depreciation, is $30. The average guest-related cost (average variable cost) for a room each night, including cleaning service and linens, is $65. The average total cost, which is the sum of the average fixed cost ($30) and the average variable cost ($65), is $95. During the winter, these hotels should shut down until summer because they cannot cover all of their fixed costs. continue to operate despite operating at a loss because they are covering all of their variable cost and a portion of their fixed costs. continue to operate because they are earning a positive economic profit. shut down until summer because they are currently operating at a loss.
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