9. 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 identied 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 York (JFK) 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 graded on any changes you make to this graph. Note: Once you enter a value in a white eld, the graph and any corresponding amounts in each grey field will change accordingly. Graph Input Tool Market for Big Winner's Hotel Rooms 500 450 | Price 150 400 (Dollars per room) A Quantity E 350 Demanded 350 2 (Hotel rooms per a 300 night) 0. E 250 9': 200 Demand Factors LIJ 0 150 13 Average Income 0: a. I ( Thousands of [j 100 " I dollars) 50 Airfare from JFK to I LAS 100 0 E E E E E E I E E (Dollars. per 0 50 100 150 200 250 300 350 400 450 500 mundtl'lp) QUANTITY (Hotel rooms) Room Rate at Lucky (Dollars per night) IE For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Big Winner is charging $150 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 Big Winner V from C] rooms per night to C] rooms per night. Therefore, the income elasticity of demand is V , meaning that hotel rooms at the Big Winner are v . If the price of a room at the Lucky 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 Big Winner V from C] rooms per night to C] rooms per night. Because the cross-price elasticity of demand is V , hotel rooms at the Big Winner and hotel rooms at the Lucky are v . For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Big Winner is charging $150 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 Big Winner v from C] rooms per night to C] rooms per night. Therefore, the income elasticity of demand is v , meaning that hotel rooms at the Big Winner are v . If the price of a room at the Lucky 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 Big Winner v from C] rooms per night to C] rooms per night. Because the cross-price elasticity of demand is v , hotel rooms at the Big Winner and hotel rooms at the Lucky are V . Big Winner 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 effect on revenue when Big Winner is operating on the v portion of its demand curve