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
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 $50,000 per year Roundtrip airfare from Pittsburgh (PIT) to Atlantic City (ACY) $100 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. 050100150200250300350400450500500450400350300250200150100500PRICE (Dollars per room)QUANTITY (Hotel rooms)Demand Graph Input Tool Market for Rivers's Hotel Rooms Price (Dollars per room) Quantity Demanded (Hotel rooms per night) Demand Factors Average Income (Thousands of dollars) Airfare from PIT to ACY (Dollars
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 $50,000 per year Roundtrip airfare from Pittsburgh (PIT) to Atlantic City (ACY) $100 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. Graph Input Tool (? 500 Market for Rivers's Hotel Rooms 450 Price 350 400 (Dollars per room) Quantity 350 150 Demanded (Hotel rooms per 300 night) PRICE ( Dollars per room) 200 Demand Factors 150 Demand Average Income 50 100 "Thousands of dollars) 50 Airfare from PIT to 100 ACY (Dollars per roundtrip) 0 50 100 150 200 250 300 350 400 450 500 Room Rate at 200 Continental QUANTITY (Hotel rooms) (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 $350 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 Rivers from rooms per night to rooms per night. Therefore, the income elasticity of demand is _ , meaning that hotel rooms at the Rivers are 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 V, hotel rooms at the Rivers and hotel rooms at the Continental are Rivers is debating decreasing the price of its rooms to $325 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 Rivers is operating on the _portion of its demand curve
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