9. Application: Elasticity and hotel rooms The following graph input tool shows the daily demand for hotel rooms at the Peacock 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 San Francisco (SFO) to Las Vegas (LAS) Room rate at the Grandiose Hotel and Casino, which is near the Peacock Initial Value $40,000 per year $200 per roundtrip $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 fleld will change accordingly. Graph Input Tool Market for Peacock's Hotel Rooms 200 Price (Dollars per room) Quantity Demanded (Hotel rooms per night) 300 PRICE (Dolars per room) Demand Factors Average Income Thousands of dotas Airfare from SFO to LAS (Dollars per roundtrip Room Rate at Grandiose (Dollars per night) 0 50 100 150 200 250 300 350 400 450 500 QUANTITY Hotel rooms) For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Peacock is charging $200 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 Peacock rises from rooms per night to rooms per night. Therefore, the income elasticity of demand is positive meaning that hotel rooms at the Peacock are If the price of a room at the Grandiose 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 Peacock from rooms per night to rooms per night. Because the cross-price elasticity of demand is hotel rooms at the Peacock and hotel rooms at the Grandiose are Peacock is debating decreasing the price of its rooms to $175 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 Peacock is operating on the w portion of its demand curve