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 from rooms per night. Because the cross-price elasticity 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 from rooms per night. Because the cross-price elasticity 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.
Economics (MindTap Course List)
13th Edition
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Roger A. Arnold
ChapterA: Working With Diagrams
Section: Chapter Questions
Problem 3QP
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Transcribed Image Text:The following graph input tool shows the daily demand for hotel rooms at the Big Winner 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 Los Angeles (LAX) to Las Vegas (LAS)
Room rate at the Lucky Hotel and Casino, which is near the Big Winner
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.
PRICE (Dollars per room)
500
450
400
350
300
250
200
150
100
50
0
Demand
0 50 100 150 200 250 300 350 400 450 500
QUANTITY (Hotel rooms)
Graph Input Tool
Market for Big Winner's Hotel Rooms
Price
(Dollars per room)
Quantity
Demanded
(Hotel rooms per
night)
Demand Factors
Initial Value
$40,000 per year
$100 per roundtrip
$200 per night
Average Income
(Thousands of
dollars)
Airfare from LAX to
LAS
(Dollars per
roundtrip)
Room Rate at Lucky
(Dollars per night)
300
200
40
100
200
(?)
Transcribed Image Text: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
from
rooms per night. Because the cross-price elasticity
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.
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