1. Hilton decides to build a luxury hotel near Genting highlands. The demand function for rooms in the luxury hotel is P=900-0.5q. The hotel total cost of maintaining a room is TC =10+2q2. Therefore, MC =4q.
a. What is the equilibrium price and quantity?
b. Calculate consumer surplus, producer surplus and total surplus
c. Impose a price ceiling of AED 760. What is the impact of the new price on the market of hotel rooms?
d. What is the new consumer surplus, producer surplus and total surplus?
e. When comparing old and new consumer surplus, producer surplus and total surplus. Who gained and who lost? Is the society better off or worse off after the change? Show graphically.