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 50%, from $40,000 to $60,000 per year, the quantity of rooms demanded at the Big Winner rooms per night. Therefore, the income elasticity of demand is from rooms per night to , meaning that hotel rooms at the Big Winner are If the price of a room at the Lucky 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 Big Winner rooms per night. Because the cross-price elasticity from rooms per night to of demand is , hotel rooms at the Big Winner and hotel rooms at the Lucky 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 total revenue to .Decreasing the price will always have this effect on revenue when Big Winner is operating on the portion of its demand curve.
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 50%, from $40,000 to $60,000 per year, the quantity of rooms demanded at the Big Winner rooms per night. Therefore, the income elasticity of demand is from rooms per night to , meaning that hotel rooms at the Big Winner are If the price of a room at the Lucky 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 Big Winner rooms per night. Because the cross-price elasticity from rooms per night to of demand is , hotel rooms at the Big Winner and hotel rooms at the Lucky 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 total revenue to .Decreasing the price will always have this effect on revenue when Big Winner is operating on the portion of its demand curve.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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