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Homework answers / question archive / Renting out rooms for travelers can be an excellent way for homeowners or renters to earn extra money
Renting out rooms for travelers can be an excellent way for homeowners or renters to earn extra money. Given the large supply of housing around many urban areas, the market for short-term room rentals is easy to enter and exit and can be modeled as a competitive market. Suppose that for the average homeowner in a desirable area, the costs of renting a room are given by c(y) = 2048 + 32y2, where y is the number of nights rented. 1st attempt Part 1 (1 point) What is the long-run equilibrium price per night to rent a room? $ Part 2 (1 point) In recent years, web applications and smartphone apps have made it much easier for people to offer rooms for rent and for potential renters to find them. We can model these technologies as cost savers; suppose that they change the cost function to cz(y) = 2048 + 8y2. In the short run, after the cost function has shifted but before any entry into the market has changed the price, what will be the economic profit for existing firms? $
Part 3 (1 point) Short-run profits will lead to entry in a competitive market, which contributes to price competition until the market reaches a long-run equilibrium again. After the cost curve change in Part 2, what will be the long-run equilibrium price in the market? $
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