20. 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 Initial Value Average American household income $50,000 per year Roundtrip airfare from San Francisco (SFO) to Las Vegas (LAS) $250 per roundtrip Room rate at the Grandiose Hotel and Casino, which is near the Peacock $200 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 ?500 Market for Peacock's Hotel Rooms 450 Price 150 (Dollars per room) 400 Quantity 350 350 Demanded (Hotel rooms per 300 night) 250 PRICE (Dollars per room) 200 Demand Factors 150 -Demand Average Income 50 (Thousands of 100 dollars) 50 Airfare from SFO to 250 LAS (Dollars per 50 100 150 200 250 300 350 400 450 500 roundtrip) QUANTITY (Hotel rooms) Room Rate at 200 Grandiose (Dollars per night) For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Peacock is charging $150 per room per night.If the pride of a room at the Grandiose were to decrease by 20%, from $200 to $160, while all other demand factors remain at their initial values, the quantity of rooms demanded at the Peacock v from rooms per night to rooms per night. Because the cross-price elasticity of demand is v , hotel rooms at the Peacock and hotel rooms at the Grandiose are v . Peacock is debating decreasing the price of its rooms to $125 per night. Under the initial demand conditions, you can see that this would cause its total revenue to v . Decreasing the price will always have this e'ect on revenue when Peacock is opemting on the 7 portion of its demand curve