20 application

Module Three Quiz 20. Application: Elasticity and hotel rooms The following graph input tool shows the daily demand for hotel rooms at the Big Winner 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 ir tial 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 San Francisco (SFO) to Las Vegas (LAS) $100 per roundtrip Room rate at the Lucky Hotel and Casino, which is near the Big Winner $200 per night Use the Graph input tool to help you answer the following questions. You will not be gradedd on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any cor espouding amounts in such gray fed will criange accordingly. Graph Input Tool (? Market for Big Winner's Hotel Rooms Price (Dole's per mam) :50 Quantity 350 Demanded Hote:' roots per PRICE (Dole's per room) Demand Factors De and Average Income 10 (Thousands of Sirfare from S:( to 100 LAS Poplars per 50 100 157 200 250 300 250 400 450 520 QUANTITY (luled Toams] Room Rate at Lucky 200 lallers per night For each of the following scenarios, begin by assuming that all demand factors are set to their original values anc Hin Winner is dieruing stan sar room per night. I average household income increases by 25%, from $40,020 to $50,000 per year, the quantity of thots demanded it the RIG dinner . from rooms per night to coome per night. Therefore, the income elasticity of de uand is .meaning thet bucci roams at the Big winner ane If the price of a room at the Lucky were to decrease by 2095, from $200 tu $250, while all other demand factors remala at their in tial valies, the quantity of moms demanded at the Big Winner from rooms Fe natt to rooms per high - Ranause the crocs-price clasticity of demand is , hotel rooms at the Big winger and hotel rooms at the Lucky are Big Winner is debating decreating the price of its moms to $125 per night. Under the nitial demand conditions, you can sue that this would cause its total revenue to_ . Decreasing the price will always have this effect on revenue when ala Winner is are still on the portion of its demand curve. Grade It Now Save & Continue Continue without saving