9. Application: Elasticity and hotel rooms The following graph input tool shows the daily demand for hotel rooms at the Rivers 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 $40,000 per year Roundtrip airfare from New Orleans (MSY) to Atlantic City (ACY) $200 per roundtrip Room rate at the Continental Hotel and Casino, which is near the Rivers $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. 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 Rivers's Hotel Rooms [1 Price (Dollars per room) Quantity Demanded o (Hotel rooms per night) Demand Factors PRICE (Dollars per room) Average Income 40 (Thousands of - dollars) Airfare from MSY to ACY 200 (Dollars'per 0 50 100 150 200 250 300 350 400 450 500 roundtrip) QUANTITY (Hotel rooms) Room Rate at M 200] Continental (Dollars per night) For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Rivers is charging $300 per room per night. If average household income increases by 50%, from $40,000 to $60,000 per year, the quantity of rooms demanded at the Rivers % from :] rooms per night to :] rooms per night. Therefore, the income elasticity of demand is W, meaning that hotel rooms at the Rivers are v If the price of a room at the Continental 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 Rivers % from rooms per night to rooms per night. Because the cross-price elasticity of demand is W, hotel rooms at the Rivers and hotel rooms at the Continental are v o, Rivers 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 W . Decreasing the price will always have this effect on revenue when Rivers is operating on the W portion of its demand curve