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 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 Average American household income Roundtrip airfare from Los Angeles (LAX) to Las Vegas (LAS) Room rate at the Lucky Hotel and Casino, which is near the Big Winner Initial Value $50,000 per year $250 per roundtrip $250 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 Big Winner's Hotel Rooms 500 450 300 400 Price (Dollars per room) Quantity Demanded (Hotel rooms per night) 200 350 300 PRICE (Dollars per room) 250 Demand Factors 200 150 50 Demand 100 250 50 Average Income (Thousands of dollars) Airfare from LAX to LAS (Dollars per roundtrip) Room Rate at Lucky (Dollars per night) 0 0 50 100 150 200 250 300 350 400 450 500 QUANTITY (Hotel rooms) 250 For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Big Winner is charging $300 per room per night. If average household income increases by 10%, from $50,000 to $55,000 per year, the quantity of rooms demanded at the Big Winner from rooms per night to rooms per night. Therefore, the income elasticity of demand is meaning that hotel rooms at the Big Winner are If the price of an airline ticket from LAX to LAS 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 Big Winner from rooms per night to rooms per night. Because the cross- price elasticity of demand is hotel rooms at the Big Winner and airline trips between LAX and LAS are Big Winner 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 Decreasing the price will always have this effect on revenue when Big Winner is operating on the portion of its demand curve. total revenue to
