For products like parking lots and hotels,costs of building capacity are mostly fixed or sunk and firms in this industry typically face capacity constraints.Therefore,

A) If SRMR>SRMC at capacity,then the firms should price to fill capacity
B) If SRMR<SRMC at capacity,then the firms should price to fill capacity
C) If LRMR>LRMC at capacity,then the firms should price to fill capacity
D) If LRMR>LRMC at capacity,then the firms should price to fill capacity

Question

​For products like parking lots and hotels,costs of building capacity are mostly fixed or sunk and firms in this industry typically face capacity constraints.Therefore,A) ​If SRMR>SRMC at capacity,then the firms should price to fill capacityB) If SRMR<SRMC at capacity,then the firms should price to fill capacityC) If LRMR>LRMC at capacity,then the firms should price to fill capacityD) ​If LRMR>LRMC at capacity,then the firms should price to fill capacity

JAHANVI PANCHAL · Accepted Answer

Final Answer : A, Explanation :  CFor products like parking lots and hotels, where costs are mostly fixed or sunk and there are capacity constraints, firms should aim to fill their capacity to maximize revenue. When Short-Run Marginal Revenue (SRMR) is greater than Short-Run Marginal Cost (SRMC) at capacity, it means that the firm can still make a profit by filling up its capacity, hence pricing to fill capacity makes sense (A). Similarly, if Long-Run Marginal Revenue (LRMR) is greater than Long-Run Marginal Cost (LRMC) at capacity, it indicates that in the long run, filling capacity is profitable, so firms should also price to fill capacity in the long run (C).

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