Answer Happy

9. Application: Elasticity and hotel rooms The following graph input tool shows the daily demand for hotel rooms at the Peacock Hotel and Casino in Las Vegas, Nevada. To help the hotel management better understand the market, an economist identified three primary factors that affect the demand for rooms each night. These demand factors, along with the values corresponding to the initial demand curve, are shown in the following table and alongside the graph input tool. Demand Factor Average American household Income Roundtrip airfare from San Francisco (SFO) to Las Vegas (LAS) Room rate at the Grandiose Hotel and Casino, which is near the Peacock Initial Value $50,000 per year $200 per roundtrip $250 per night Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. Graph Input Tool Market for Peacock's Hotel Rooms 300 200 Price (Dollars per room) Quantity Demanded (Hotel rooms per night) 200 PRUCE dan perem) 200 150 Demand 790 # Demand Factors . 01000000 QUANTITY Hotel rooms 50 200 Average Income (Thousands of dollars) Airfare from SFO to LAS (Dollars per roundtrip) Room Rate at Grandiose (Dollars per night) 250
For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Peacock is charging $300 per room per night. If average household income increases by 20%, from $50,000 to $60,000 per year, the quantity of rooms demanded at the Peacock_from rooms per night to rooms per night Therefore, the income elasticity of demand is meaning that hotel rooms at the Peacock are If the price of an airline ticket from SFO to LAS were to increase by 10%, from $200 to $220 roundtrip, while all other demand factors remain at their initial values, the quantity of rooms demanded at the Peacock from rooms per night to rooms per night. Because the cross-price elasticity of demand is , hotel rooms at the Peacock and airline trips between SFO and LAS are Peacock is debating decreasing the price of its rooms to $275 per night. Under the initial demand conditions, you can see that this would cause its total revenue to Decreasing the price will always have this effect on revenue when Peacock is operating on the portion of its demand curve.