5. (12 pts - 2 points for each subpart) Spring break travel prices are estimated to be 8-10% higher this year. A resort in South Padre decided to run a price promotion for room rentals. They know the elasticity of demand for resort rooms is -2.50. During the price promotion, they expect to be at full capacity with 500 rooms sold per night. Before the price drop, they sold an average of 375 rooms a night. Round to the nearest two decimal places for calculations. a. Does this resort have an inelastic or elastic own-price elasticity of demand? Interpret the OPE given above. b. For them to be able to achieve this increased sale, what would the percentage change in price need to be? c. If the price before the promotion was $250 per night, what is the new price? d. Calculate the revenue before the price drop. e. Calculate the revenue after the price drop. f. Is the price drop a good marketing strategy, given all else is same?

5. (12 pts - 2 points for each subpart) Spring break travel prices are estimated to be 8-10% higher this year. A resort in South Padre decided to run a price promotion for room rentals. They know the elasticity of demand for resort rooms is -2.50. During the price promotion, they expect to be at full capacity with 500 rooms sold per night. Before the price drop, they sold an average of 375 rooms a night. Round to the nearest two decimal places for calculations. a. Does this resort have an inelastic or elastic own-price elasticity of demand? Interpret the OPE given above. b. For them to be able to achieve this increased sale, what would the percentage change in price need to be? c. If the price before the promotion was $250 per night, what is the new price? d. Calculate the revenue before the price drop. e. Calculate the revenue after the price drop. f. Is the price drop a good marketing strategy, given all else is same?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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