9. Application: Elasticity and hotel rooms The following graph input tool shows the daily demand for hotel rooms at the Peacock 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 Initial Value Average American household income $40,000 per year Roundtrip airfare from New York (JFK) to Las Vegas (LAS) $200 per roundtrip Room rate at the Grandiose Hotel and Casino, which is near the Peacock $250 per night 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. 050100150200250300350400450500500450400350300250200150100500PRICE (Dollars per room)QUANTITY (Hotel rooms)Demand Graph Input Tool Market for Peacock's Hotel Rooms Price (Dollars per room) Quantity Demanded (Hotel rooms per night) Demand Factors Average Income (Thousands of dollars) Airfare from JFK to LAS (Dollars per roundtrip) Room Rate at Grandiose (Dollars per night) For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Peacock is charging $350 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 Peacock from rooms per night to rooms per night. Therefore, the income elasticity of demand is , meaning that hotel rooms at the Peacock are . If the price of a room at the Grandiose were to decrease by 10%, from $250 to $225, while all other demand factors remain at their initial values, the quantity of rooms demanded at the Peacock from rooms per night to rooms per night. Because the cross-price elasticity of demand is , hotel rooms at the Peacock and hotel rooms at the Grandiose are . Peacock 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 total revenue to . Decreasing the price will always have this effect on revenue when Peacock is operating on the portion of its demand curve.

9. Application: Elasticity and hotel rooms The following graph input tool shows the daily demand for hotel rooms at the Peacock 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 Initial Value Average American household income $40,000 per year Roundtrip airfare from New York (JFK) to Las Vegas (LAS) $200 per roundtrip Room rate at the Grandiose Hotel and Casino, which is near the Peacock $250 per night 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. 050100150200250300350400450500500450400350300250200150100500PRICE (Dollars per room)QUANTITY (Hotel rooms)Demand Graph Input Tool Market for Peacock's Hotel Rooms Price (Dollars per room) Quantity Demanded (Hotel rooms per night) Demand Factors Average Income (Thousands of dollars) Airfare from JFK to LAS (Dollars per roundtrip) Room Rate at Grandiose (Dollars per night) For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Peacock is charging $350 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 Peacock from rooms per night to rooms per night. Therefore, the income elasticity of demand is , meaning that hotel rooms at the Peacock are . If the price of a room at the Grandiose were to decrease by 10%, from $250 to $225, while all other demand factors remain at their initial values, the quantity of rooms demanded at the Peacock from rooms per night to rooms per night. Because the cross-price elasticity of demand is , hotel rooms at the Peacock and hotel rooms at the Grandiose are . Peacock 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 total revenue to . Decreasing the price will always have this effect on revenue when Peacock 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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9. Application: Elasticity and hotel rooms

The following graph input tool shows the daily demand for hotel rooms at the Peacock 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	Initial Value
Average American household income	$40,000 per year
Roundtrip airfare from New York (JFK) to Las Vegas (LAS)	$200 per roundtrip
Room rate at the Grandiose Hotel and Casino, which is near the Peacock	$250 per night

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.

050100150200250300350400450500500450400350300250200150100500PRICE (Dollars per room)QUANTITY (Hotel rooms)Demand

Graph Input Tool

Market for Peacock's Hotel Rooms
Price (Dollars per room)
Quantity Demanded (Hotel rooms per night)

Demand Factors
Average Income (Thousands of dollars)
Airfare from JFK to LAS (Dollars per roundtrip)
Room Rate at Grandiose (Dollars per night)

For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Peacock is charging $350 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 Peacock from

rooms per night to

rooms per night. Therefore, the income elasticity of demand is , meaning that hotel rooms at the Peacock are .

If the price of a room at the Grandiose were to decrease by 10%, from $250 to $225, while all other demand factors remain at their initial values, the quantity of rooms demanded at the Peacock from

rooms per night to

rooms per night. Because the cross-price elasticity of demand is , hotel rooms at the Peacock and hotel rooms at the Grandiose are .

Peacock 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 total revenue to . Decreasing the price will always have this effect on revenue when Peacock is operating on the portion of its demand curve.

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.
Graph Input Tool
Market for Peacock's Hotel Rooms
500
450
I Price
(Dollars per room)
350
400
Quantity
Demanded
(Hotel rooms per
night)
150
350
300
250
Demand Factors
200
150
Demand
Average Income
(Thousands of
dollars)
40
100
50
Airfare from JFK to
LAS
(Dollars per
roundtrip)
200
50 100 150 200 250 300 350 400 450 500
QUANTITY (Hotel rooms)
Room Rate at
250
Grandiose
(Dollars per night)
For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Peacock is charging $350 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 Peacock
from
rooms per night to
rooms per night. Therefore, the income elasticity of demand is
meaning that hotel rooms at the
Peacock are
If the price of a room at the Grandiose were to decrease by 10%, from $250 to $225, while all other demand factors remain at their initial values, the
quantity of rooms demanded at the Peacock
from
rooms per night to
rooms per night. Because the cross-price elasticity
of demand is
hotel rooms at the Peacock and hotel rooms at the Grandiose are
Peacock 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
total revenue to
. Decreasing the price will always have this effect on revenue when Peacock is operating on the
portion
of its demand curve.
PRICE (Dol lars per room)

9. Application: Elasticity and hotel rooms
The following graph input tool shows the daily demand for hotel rooms at the Peacock 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
Initial Value
Average American household income
$40,000 per year
Roundtrip airfare from New York (JFK) to Las Vegas (LAS)
$200 per roundtrip
Room rate at the Grandiose Hotel and Casino, which is near the Peacock
$250 per night
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.

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