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Suppose Atlanta is proposing to finance their new NFL stadium using taxes on hotel rooms. The idea is that this will get visitors (who are likely benefiting from the stadium) to pay for the stadium rather than the locals. Assume that demand for hotel rooms is given by:
P (Q) = 150 − 5Q
where Q is in thousands of rooms. The supply curve (marginal cost curve) is:MC(Q) = 5Q
There are many hotels in the are so this market is competitive (i.e., the equilibrium is where demand and supply curves intersect).
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