Hastur Hospitality offers a quaint bed-and-breakfast (B&B) experience in the coastal city of Innsmouth in northeast Massachusetts. Demand comes both from travelers visiting the town of Innsmouth as well as travelers visiting the nearby town of Dunwich. Demand for staying in Innsmouth is given by Qi=24- Pi, where Pi is the price that Hastur charges for staying at itsB&B in Innsmouth. There is additional demand from Dunwich, and is given by Qd= 20-Pi, so long as no B&B is present in Dunwich, which is currently the case. Hastur’s marginal cost of service is 8.
a) Your goal as the manager in charge of pricing is to maximize profit. What price will you set at your Innsmouth location? What is your expected profit?