Hand written solutions are strictly prohibited 9. 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.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.PRICE (Dolars per room)500450400350300250200150100500Demand50 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$250 per roundtrip$200 per night(Dollars perroundtrip)Room Rate atMountaineer(Dollars per night)35015050250200~For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Lakes is charging $350 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 to rooms per night. Therefore, the income elasticity of demand isfrommeaning that hotel rooms at the Lakes areIf the price of an airline ticket from MSY to ACY were to increase by 20%, from $250 to $300 roundtrip, while all other demand factors remain at theirinitial values, the quantity of rooms demanded at the Lakes fromrooms per night. Because the cross-priceelasticity of demand isrooms per night tohotel rooms at the Lakes and airline trips between MSY and ACY areLakes is debating decreasing the price of its rooms to $325 per night. Under the initial demand conditions, you can see that this would cause its totalrevenue to. Decreasing the price will always have this effect on revenue when Lakes is operating on theportion of itsdemand curve.

The income elasticity of demand is a formula used to determine how sensitive a good's demand is to…

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. 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 Initial Value $50,000 per year $250 per roundtrip $200 per night