Attempts9. Application: Elasticity and hotel roomsThe following graph input tool shows the daily demand for hotel rooms at the Lakes Hotel and Casino in Atlantic City, New Jersey. To help the hotelmanagement better understand the market, an economist identified three primary factors that affect the demand for rooms each night. These demandfactors, along with the values corresponding to the initial demand curve, are shown in the following table and alongside the graph input tool.PRICE (Dollars per room)Demand FactorAverage American household incomeRoundtrip airfare from New Orleans (MSY) to Atlantic City (ACY)Room rate at the Mountaineer Hotel and Casino, which is near the LakesUse 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.500450400350300250200150100Average / 35000Lakes areDemand150 100 150 200 250 300 350 400 450 500QUANTITY (Hotel rooms)Graph Input ToolMarket for Lakes's Hotel RoomsPrice(Dollars per room)QuantityDemanded(Hotel rooms pernight)Demand FactorsAverage Income(Thousands ofdollars)Airfare from MSY toACYInitial Value$50,000 per year$200 per roundtrip$200 per night(Dollars perroundtrip)Room Rate atMountaineer(Dollars per night)10040050200200For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Lakes is charging $100 per room pernight.If average household income increases by 20%, from $50,000 to $60,000 per year, the quantity of rooms demanded at the Lakesrooms per night torooms per night. Therefore, the income elasticity of demand is?from, meaning that hotel rooms at theIf the price of a room at the Mountaineer 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 Lakes✓ fromrooms per night. Because the cross-price elasticityof demand isrooms per night to, hotel rooms at the Lakes and hotel rooms at the Mountaineer areLakes is debating decreasing the price of its rooms to $75 per night. Under the initial demand conditions, you can see that this would cause its totalrevenue toDecreasing the price will always have this effect on revenue when Lakes is operating on theportion of itsdemand curve.

Demand Valuehousehold income$50,000 per yearRoundtrip from(MSY) to (ACY)$200 per roundtripRoom rate…

For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Lakes is charging $100 per room per night. from If average household income increases by 20%, from $50,000 to $60,000 per year, the quantity of rooms demanded at the Lakes rooms per night to , meaning that hotel rooms at the rooms per night. Therefore, the income elasticity of demand is Lakes are If the price of a room at the Mountaineer 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 Lakes from rooms per night. Because the cross-price elasticity rooms per night to of demand is hotel rooms at the Lakes and hotel rooms at the Mountaineer are Lakes is debating decreasing the price of its rooms to $75 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 Lakes 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 Lakes is charging $100 per room per night. from If average household income increases by 20%, from $50,000 to $60,000 per year, the quantity of rooms demanded at the Lakes rooms per night to , meaning that hotel rooms at the rooms per night. Therefore, the income elasticity of demand is Lakes are If the price of a room at the Mountaineer 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 Lakes from rooms per night. Because the cross-price elasticity rooms per night to of demand is hotel rooms at the Lakes and hotel rooms at the Mountaineer are Lakes is debating decreasing the price of its rooms to $75 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 Lakes is operating on the portion of its demand curve.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Attempts
9. Application: Elasticity and hotel rooms
The following graph input tool shows the daily demand for hotel rooms at the Lakes 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.
PRICE (Dollars per room)
Demand Factor
Average American household income
Roundtrip airfare from New Orleans (MSY) to Atlantic City (ACY)
Room rate at the Mountaineer Hotel and Casino, which is near the Lakes
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.
500
450
400
350
300
250
200
150
100
Average / 3
50
0
0
Lakes are
Demand
1
50 100 150 200 250 300 350 400 450 500
QUANTITY (Hotel rooms)
Graph Input Tool
Market for Lakes's Hotel Rooms
Price
(Dollars per room)
Quantity
Demanded
(Hotel rooms per
night)
Demand Factors
Average Income
(Thousands of
dollars)
Airfare from MSY to
ACY
Initial Value
$50,000 per year
$200 per roundtrip
$200 per night
(Dollars per
roundtrip)
Room Rate at
Mountaineer
(Dollars per night)
100
400
50
200
200
For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Lakes is charging $100 per room per
night.
If average household income increases by 20%, from $50,000 to $60,000 per year, the quantity of rooms demanded at the Lakes
rooms per night to
rooms per night. Therefore, the income elasticity of demand is
?
from
, meaning that hotel rooms at the
If the price of a room at the Mountaineer 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 Lakes
✓ from
rooms per night. Because the cross-price elasticity
of demand is
rooms per night to
, hotel rooms at the Lakes and hotel rooms at the Mountaineer are
Lakes is debating decreasing the price of its rooms to $75 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 Lakes is operating on the
portion of its
demand curve.

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