20. Application: Elasticity and hotel rooms

The following graph input tool shows the daily demand for hotel rooms at the Triple Sevens 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.

20. Application: Elasticity and hotel rooms The following graph input tool shows the daily demand for hotel rooms at the Triple Sevens 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 Initial Value Average American household income $40,000 per year Roundtrip airfare from Los Angeles (LAX) to Las Vegas (LAS) $250 per roundtrip Room rate at the Exhilaration Hotel and Casino, which is near the Triple Sevens $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 Triple Sevens's Hotel Rooms Price 200 (Dollars per room) Quantity 300 Demanded ( Hotel rooms per night PRICE (Dollars per room) Demand Factors Demand Average Income 40 Thousands of dollars) Airfare from LAX to 250 LAS ( Dollars per 0 50 100 150 200 250 300 350 400 450 500 roundtrip) QUANTITY (Hotel rooms) Room Rate at 250 Exhilaration (Dollars per night)For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Triple Sevens is charging $200 per room per night. If average household income increases by 25%, from $40,000 to $50,000 per year, the quantity of rooms demanded at the Triple Sevens from rooms per night to rooms per night. Therefore, the income elasticity of demand is meaning that hotel rooms at the Triple Sevens are If the price of a room at the Exhilaration were to decrease by 20%, from $250 to $200, while all other demand factors remain at their initial values, the quantity of rooms demanded at the Triple Sevens from rooms per night to rooms per night. Because the cross-price elasticity of demand is hotel rooms at the Triple Sevens and hotel rooms at the Exhilaration are Triple Sevens is debating decreasing the price of its rooms to $175 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 Triple Sevens is operating on the portion of its demand curve