Your Student Association Is Looking for an Auditorium to Rent

question 246

Essay

Your student association is looking for an auditorium to rent for an all-day conference. The university's Performing Arts Center is vacant on that day, so the association wants to rent it. The physical plant manager tells you that the daily rent is $660, which includes $400 to cover part of the cost paid to build the Center, $40 to cover part of its regular maintenance cost, $50 to help pay for the building's insurance, $100 to cover the extra cost of electricity that the university would incur because of the conference, and $70 to pay for additional janitorial services for the conference. You know that no one else wants to rent the Center on that day and you think that the price that the manager charges is too high. But how much should you pay? Use the economic way of thinking to answer this question and to convince the manager to accept your offer:
a) If you rent the Center, what will be the university's marginal cost of renting the center to you?
b) If you rent the Center, what will be the university's marginal benefit of renting the center to you?
c) What amount of rent should you offer? Convince the manager to accept your offer.

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Definitions:

Expected Return/Beta Relationship

A concept in finance that describes the relationship between the expected return on an investment and its beta, indicating the investment's sensitivity to market movements.

Expected Return/Beta Relationship

The expected return/beta relationship is a core concept in finance, positing that the expected return on an investment is directly related to its beta, or sensitivity to market movements.

Regulatory Commissions

Government agencies responsible for enforcing laws and regulations in various industries to protect public interest and ensure fair practices.

Discount Rates

The rate of interest applied to calculate the current value of future cash flows.