8. Substitutes, complements, or unrelated? You work for a marketing firm that has just landed a contract with Run-of-the-Mills to help them promote three of their products: splishy splashers, raskels, and mookies. All of these products have been on the market for some time, but, to entice better sales, Run-of-the-Mills wants to try a new advertisement that will market two of the products that consumers will likely consume together. As a former economics student, you know that complements are typically consumed together while substitutes can take the place of other goods. Run-of-the-Mills provides your marketing firm with the following data: When the price of splishy splashers increases by 10%, the quantity of raskels sold increases by 11% and the quantity of mookies sold decreases by 5%. Your job is to use the cross-price elasticity between splishy splashers and the other goods to determine which goods your marketing firm should advertise together. Complete the first column of the following table by computing the cross-price elasticity between splishy splashers and raskels, and then between splishy splashers and mookies. In the second column, determine if splishy splashers are a complement to or a substitute for each of the goods listed. Finally, complete the final column by indicating which good ommend marketing with splishy splashers. Complement Relative to Splishy Spla Substitute Cross-Price Elasticity of Demand Com bstitute Recommend Marketing with Splishy Splashers Raskels MookiesComplete the first column of the following table by computing the cross-price elasticity between splishy splashers and raskels, and then between splishy splashers and mookies. In the second column, determine if splishy splashers are a complement to or a substitute for each of the goods listed. Finally, complete the final column by indicating which good you should recommend marketing with splishy sp Yes Relative to Splishy Splashers No Cross-Price Elasticity of Demand Complement or Substitute Recommend Marketi Splishy Splashers Raskels Mookies9. Application: Elasticityr and hotel rooms The following graph input tool shows the daily demand for hotel rooms at the Lakes Hotel and Casino in Atlantic City, New Jersey. 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 550,000 per year Roundtrip airfare from New Orleans (MSY) to Atlantic City (ACY) 5250 per roundtrip Room rate at the Mountaineer Hotel and Casino, which is near the Lakes 5200 per night Use the graph lnput tool to help you answer the followlng questions. You Will not be graded on any Changes you make to thls graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. 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 Lakes's Hotel Rooms 450 Price 350 (Dollars per room) 400 Quantity Demanded 150 350 (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 MSY to 250 ACY (Dollars per 0 50 100 150 200 250 300 350 400 450 500 roundtrip) QUANTITY (Hotel rooms) Room Rate at 200 Mountaineer (Dollars per night)For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Lakes is charging $350 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 Lakes V from E rooms per night to E rooms per night. Therefore, the income elasticity of demand is V , meaning that hotel rooms at the Lakes are I I V . If the price of an airline ticket from MSY to ACY were to increase by 20%, from $250 to $3 initial values, the quantity of rooms demanded at the Lakes V from E rooms per elasticity of demand is V , hotel rooms at the Lakes and amine trips between MSY and ACY are V . positive , while all other demand factors remain at their rooms per night. Because the crossprice Lakes is debating decreasing the price of its rooms to $325 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 effect on revenue when Lakes is operating on the V portion of its demand curve. If average household income increases by 20%, from $50,000 to $60,000 per year, the quantity of rooms demanded at the Lakes V from E rooms per night to E rooms per night. Therefore, the income elasticity of demand is V , meaning that hotel rooms at the Lakes are V line ticket from MSY to ACY were to increase by 20%, from $250 to $300 roundtrip, while all other demand factors remain at their antity of rooms demanded at the Lakes V from E rooms per night to E rooms per night. Because the crosspnce . I is V , hotel rooms at the Lakes and airline tn'ps between MSY and ACY are V . a normal good an inferior good I ' I I ' Lakes is debating decreasing the price of its rooms to $325 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 effect on revenue when Lakes is operating on the V portion of its demand curve. If the price of an airline ticket from MSY to ACY were to increase by 20%, from $250 to $300 roundtrip, while all other demand factors remain at their initial values, the quantity of rooms demanded at the Lakes V from E rooms per night toE rooms per night. Because the crossprice elasticity of demand is V , hotel rooms at the l airline tn'ps between MSY and ACY are V . Lakes is debating decreasing the price of its rooms to $325 t. Under the initial demand conditions, you can see that this would cause its total revenue to V . Decreasing the price will alwayr is effect on revenue when Lakes is operating on the V portion of its demand curve. If the price of an airline ticket from MSY to ACY were to increase by 20%, from $250 to $300 roundtrip, while all other demand factors remain at their initial \\uraluesr the quantity of rooms demanded at the Lakes V from \\:| roorns per night to E rooms per night. Because the crossprice elasticity of demand is V . hotel rooms at the Lakes and aidine tn'ps between MSY and ACY are V . revenue to V . Decreasing the price will always have this effect on revenue when Lakes is ope complements V portion of its Lakes is debating decreasing the price of its rooms to $325 per night. Under the initial demand conditions, substitutes his would cause its total demand curve. If the price of an airline ticket from MSY to ACY were to increase by 20%, from $250 to $300 roundtrip, while all other demand factors remain at their initial \\uraluesr the quantity of rooms demanded at the Lakes V from E rooms per night toE rooms per night. Because the crossprice elasticity of demand is V . hotel rooms at the Lakes and ainine tn'ps between MSY and ACY are V . Lakes is debating dec- rice of its rooms to $325 per night. Under the initial demand conditions, you can see that this would cause its total revenue to -sing the price will always have this effect on revenue when Lakes is operating on the V portion of its demand curve. If the price of an airline ticket from MSY to ACY were to increase by 20%, from $250 to $300 roundtrip, while all other demand factors remain at their initial values, the quantity of rooms demanded at the Lakes from rooms per night to rooms per night. Because the cross-price elasticity of decrease , hotel rooms at the Lakes and airline trips between MSY and ACY are increase Lakes is del leasing the price of its rooms to $325 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 Lakes is operating on the portion of its demand curve.elasticity of demand is , hotel rooms at the Lakes and airline trips between MSY and ACY are elastic inelastic Lakes is debating decreasing the price of its rooms to $325 per night. Under the initial demand conditions, you can see t uld cause its total revenue to . Decreasing the price will always have this effect on revenue when Lakes is operating on the portion of its demand curve.If average household income increases by 20%, from $50,000 to $60,000 per yi'earr the quantity of rooms demanded at the Lakes V from \\:| rooms per night to E rooms per night. Therefore, the income elasticity of demand is V , meaning that hotel rooms at the Lakes are v a normal good antity of rooms demanded at the Lakes V from \\:| rooms per night to E rooms per night. Because the crossprice . I is V , hotel rooms at the Lakes and air1ine tn'ps between MSY and ACY are V . line ticket from MSY to ACY were to increase by 20%r from $250 to $300 roundtrip, while all other demand factors remain at their I ' I I ' Lakes is debating decreasing the price of its rooms to $325 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 effect on revenue when Lakes is operating on the V portion of its demand curve. 10. Price elasticity' of suppl\\,lr in the short run and long run The following graph shows the longrun supply curve for pecans. Place the orange line (square symbol) on the following graph to show the most likely shortrun supply curve for pecans. (Note: Place the points of the line either on W and P or on W and 1.) 24 + 20 ' ShortRun Supply 12 ' LongRun Supplyr PRICE (Dollars per pound) l l o 2 4 6 s 10 12 QUANTITY (Thousands of pounds of pecans)