If average household income increases by 25%, from $40,000 to $50,000 per year, the quantity of rooms demanded at the Big Winner from rooms per night to rooms per night. Therefore, the income elasticity of demand is , meaning that hotel rooms at the Big Winner are If the price of a room at the Lucky were to decrease by 20%, from $250 to $200, 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 $175 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.

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
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Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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PRICE (Dollars per room)
500
450
400
350
300
250
200
150
100
50
0
0
Demand
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
Average Income
(Thousands of
dollars)
Airfare from LAX to
LAS
(Dollars per
roundtrip)
Room Rate at Lucky
(Dollars per night)
200
300
40
250
250
For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Big Winner is charging $200 per
room per night.
If average household income increases by 25%, from $40,000 to $50,000 per year, the quantity of rooms demanded at the Big Winner from
rooms per night to
rooms per night. Therefore, the income elasticity of demand is
, meaning that hotel rooms at the
Big Winner are
If the price of a room at the Lucky were to decrease by 20%, from $250 to $200, 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
of demand is
rooms per night to
hotel rooms at the Big Winner and hotel rooms at the Lucky are
Big Winner is debating decreasing the price of its rooms to $175 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.
Transcribed Image Text:PRICE (Dollars per room) 500 450 400 350 300 250 200 150 100 50 0 0 Demand 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 Average Income (Thousands of dollars) Airfare from LAX to LAS (Dollars per roundtrip) Room Rate at Lucky (Dollars per night) 200 300 40 250 250 For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Big Winner is charging $200 per room per night. If average household income increases by 25%, from $40,000 to $50,000 per year, the quantity of rooms demanded at the Big Winner from rooms per night to rooms per night. Therefore, the income elasticity of demand is , meaning that hotel rooms at the Big Winner are If the price of a room at the Lucky were to decrease by 20%, from $250 to $200, 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 of demand is rooms per night to hotel rooms at the Big Winner and hotel rooms at the Lucky are Big Winner is debating decreasing the price of its rooms to $175 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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