The following graph input tool shows the daily demand for hotel rooms at the Oceans 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 FactorInitial ValueAverage American household income$50,000 per yearRoundtrip airfare from Pittsburgh (PIT) to Atlantic City (ACY)$250 per roundtripRoom rate at the Meadows Hotel and Casino, which is near the Oceans$250 per night For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Oceans is charging $100 per room per night. If average household income
The following graph input tool shows the daily
Demand FactorInitial ValueAverage American household income$50,000 per yearRoundtrip airfare from Pittsburgh (PIT) to Atlantic City (ACY)$250 per roundtripRoom rate at the Meadows Hotel and Casino, which is near the Oceans$250 per night
For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Oceans 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 Oceans____ from
rooms per night to______rooms per night. Therefore, the income elasticity of demand is____ , meaning that hotel rooms at the Oceans are _____ .
If the
Oceans 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 Oceans is operating on the _____ portion of its demand curve.
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