A hotel at a beachside resort charges $175 per night for a standard room during the off-season. The hotel has 250 rooms and the average nightly vacancy rate is 10%. A nearby hotel of a similar standard charges $200 per night during the off-season. The manager of the first hotel estimates that if the price was raised from $175 to $200 the vacancy rate would increase to 20% however total revenue would increase.

Which of the following statements is correct?

Select one:

a.

The price elasticity of demand is -1.13. Therefore demand is price elastic and total revenue will decrease.

b.

The price elasticity of demand is -0.88. Therefore demand is price inelastic and total revenue will decrease.

c.

The price elasticity of demand is -0.88. Therefore demand is price inelastic and total revenue will increase.

d.

The price elasticity of demand is -1.13. Therefore demand is price elastic and total revenue will increase.

e.

The price elasticity of demand is -1.13. Therefore demand is price inelastic and total revenue will increase.

f.

The price elasticity of demand is -0.88. Therefore demand is price elastic and total revenue will decrease.