Essay on Profit and Shut down Decision of the Motel essay

Essayon Profit and Shut down Decision of the Motel

Essayon Profit and Shut down Decision of the Motel

Profitsand the Shutdown Decision

Aprofitable motel will tend to shut down because an increase in theland value has a negative effect on it. As the economy rises, thevalue of the land also increases considerably thereby compellinghigher amount of money to cater for the land. The motel may also beshut down due to the members or the manager’s decision. Because theland is too high, when it belongs to the motel, they may sell itaccounting for a lot of income as opposed to the profit generated bytermination.

Someof the costs that may make the motel shut down include rent forbuilding the motel that would otherwise be saved if it was rented. Asthe value of the land increases, the profit returns will also reduceconsiderably. Since the economy is changing, there are chances that afurther increase may, in the long run, be profitable to the motel.

Transportcost may increase as a result of the relocation of the main source ofraw materials to the motel. This may be attributed to the businessenterprise lacking the capacity to cope up with the high land value.The management and operational cost increases with the economy wherewhatever the business spent for administration and operation are muchhigh. Therefore, the motel shuts down.

Evaluatethe following statement using economic reasoning: &quotA monopolistcan charge whatever she wants because she is the only sourceavailable.&quot

Itis true that a monopoly can change whatever she wants. The supportfor this statement regards monopolism involving only one party beingin charge of the production and selling of the commodities in themarket. Since they are the only party that controls the production,they are in a position to change anything. They lack any competitorthat may overshadow them when they change their product prices.

Identifyand describe a real world example of an oligopoly. Whatcharacteristics of this market fit the definition of an oligopoly?What role does advertising play in this market? Is this consistentwith what you have learned about advertising and oligopoly in thiscourse?

Inthe real world, the auto industry in the United States of America isan example of an oligopoly. The industry has only a few operatingmanufacturers of automobiles in the area to which the U.S hasdominated. The manufacturers include Ford, GMC, and Chrysler.

Advertisementserves as a means launch a new product into the market. It createsawareness about the existence of a particular product in the market,its usage and where to find it. The advertisement also helps correcta mistake that has been made or rectify the image of a particularproduct that may have been distorted by other parties. The advertalso reminds customers of the product availability. It informs thepotential buyers on the new modification and changes that have beenmade on the product. This is what I have learned.


Hubbard,G., Garnett, A., &amp Lewis, P. (2012). Essentialsof Economics.New York: Pearson Higher Education AU.