Week Five Workshop Questions - 3203THS Tourism and Hospitality Economic Analysis

Student Name: Xia YANG Student number: s5078560

Workshop Questions

1. Give a tourism/hospitality relevant example of how the factors of production can be

substituted to minimise costs.

Hilton franchise their brand names, trade and service marks and operating systems to hotel owners
under franchise agreements. Hilton does not directly participate in the day-to-day management or
operation of franchises hotels and do not employ the individuals working at these locations. Each
franchisee pays Hilton company application and royalty fee. This helps Hilton minimise costs on their
labour and capital.

2. If total cost of opening a restaurant for the night is $3000 and total fixed costs are $1500, if
the restaurant can serve 100 diners, what is the marginal cost of serving an additional diner
if there is capacity to do so?

Marginal costs = cost of supplying one extra unit of output

Variable cost (VC) = Total cost (TC) – Fixed cost (FC) =$3000-$1500=$1500

Average cost (AC) = total cost divided by output = 3000/100=$30

Marginal cost = 1500/100 = $15

3. What is the difference between average costs in the short run for a manufacturing firm
compared to a service firm?

Average cost is the total cost divided by the quantity of output. In a short run, average cost is
relatively large as total costs is dominated by the fixed cost in a low level of output. Most
manufacturing firms are likely to product an optimal level of output to minimises average cost per
unit. For example, the firm that produced car accessories always make sure they can certain goal to
produce a certain amount of products to balance or even minimize average costs. However, unlike
manufacturing firms, service firms such as tourism and hospitality industry, would not be able to
cover or minimise average costs in a short period. This is due to that service firms have high fixed
costs and fixed capacity. For example, the average costs of a hotel can be varied in an off or busy
season.

Service firms generally have falling average costs all the way to the capacity constraint (where they
cannot offer any more) because their marginal costs are low.

4. Describe three external economies of scale that could be seen in the Gold Coast tourism
industry.
External economies of scale refer to the factors driving production costs down while
increasing the level of output, based on outside the firm.
 Pool of skilled labour: when a competing company opens a store in an area, professional
workers will seek employment. Due to the booming in tourism industry in Australia, the Gold
 Coast attracts tourists from worldwide. Also, more students with different culture
background come to the Gold Coast study hotel & tourism management, it provides a large
pool of labour in the hotel industry in the Gold Coast. Therefore, it is easy to hire people.
 Increase in specialist suppliers: there will be more suppliers for the industry. If the coffee
machine is broken and some components need to be replaced. On the Gold Coast, there are
probably several stores offers cheap coffee machines services and cheap components as the
booming in café in such tourism place (there are demand). However, the people in the rural
place may need to buy these components in a higher price, or even order it online.
 Combined marketing effects: for example, both motel and Hilton hotel put up an ad on their
website to attract tourists. Some people may think motel is cost-effective, but they want to
stay in a nicer hotel, so they think Hilton is more suitable. In turn, some others saw Hilton’s
ads, but they cannot afford it, they would choose the motel. This combined marketing
effects can also attract government funding. Gold coast tourism, Queensland Tourism and
Evets, Tourism Australia all market the destination which has benefits for individual
suppliers.
5. Read the article “World airlines put their 747s out to pasture” and discuss the advantages of
the A380 versus the A350. 2-3 sentences will be sufficient.

Due to the advent of new planes, the map for global air travel are redrew. Whilst A380 can carry
more passengers than A350, but A350 is less expensive to operate one seat and allow airlines to
offer multiple flights on routes that once justified only a single big aircraft. Smaller jet is easier to fill.
Therefore, this shift avoids almost forced stay in global airport hubs. Amplifying the shift is the
proliferation of no-frills budget carriers flying internationally that have helped to drive down ticket
prices and sur a boom in air travel. This is driven by the proliferation of cheap, low-cost airlines flying
internationally, which help reduce ticket prices and air travel boom. Long-haul travel is no longer
something that is luxury.

Reflection

Please identify any concepts you would like further explanation of in next week’s lecture.

In the next week’s lecture, I would like to have a further learning of average cost and marginal cost.