ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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8. Application: Elasticity and hotel rooms The following graph input tool shows the daily demand for hotel rooms at the Triple Sevens 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 $50,000 per year Roundtrip airfare from New York (JFK) to Las Vegas (LAS) $100 per roundtrip Room rate at the Exhilaration Hotel and Casino, which is near the Triple Sevens $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. Graph Input Tool (? Market for Triple Sevens's Hotel Rooms 500 450 I Price (Dollars per room) 200 400 Quantity Demanded (Hotel rooms per night) 300 350 300 250 Demand Factors 200 150 + Demand Average Income (Thousands of dollars) 50 100 + 50 Airfare from JFK to LAS (Dollars per roundtrip) 100 50 100 150 200 250 300 350 400 450 500 QUANTITY (Hotel rooms) Room Rate at Exhilaration (Dollars per night) 250 For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Triple Sevens is charging $200 per room per night. If average household income increases by 10%, from $50,000 to $55,000 per year, the quantity of rooms demanded at the Triple Sevens v from rooms per night to rooms per night. Therefore, the income elasticity of demand is , meaning that hotel rooms at the Triple Sevens are If the price of a room at the Exhilaration were to decrease by 10%, from $250 to $225, while all other demand factors remain at their initial values, ▼ from Z , hotel rooms at the Triple Sevens and hotel rooms at the Exhilaration are the quantity of rooms demanded at the Triple Sevens |rooms per night to| rooms per night. Because the cross-price elasticity of demand is Triple Sevens 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 Triple Sevens is operating on the v portion of its demand curve. PRICE (Dollars per room)
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Transcribed Image Text:8. Application: Elasticity and hotel rooms The following graph input tool shows the daily demand for hotel rooms at the Triple Sevens 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 $50,000 per year Roundtrip airfare from New York (JFK) to Las Vegas (LAS) $100 per roundtrip Room rate at the Exhilaration Hotel and Casino, which is near the Triple Sevens $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. Graph Input Tool (? Market for Triple Sevens's Hotel Rooms 500 450 I Price (Dollars per room) 200 400 Quantity Demanded (Hotel rooms per night) 300 350 300 250 Demand Factors 200 150 + Demand Average Income (Thousands of dollars) 50 100 + 50 Airfare from JFK to LAS (Dollars per roundtrip) 100 50 100 150 200 250 300 350 400 450 500 QUANTITY (Hotel rooms) Room Rate at Exhilaration (Dollars per night) 250 For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Triple Sevens is charging $200 per room per night. If average household income increases by 10%, from $50,000 to $55,000 per year, the quantity of rooms demanded at the Triple Sevens v from rooms per night to rooms per night. Therefore, the income elasticity of demand is , meaning that hotel rooms at the Triple Sevens are If the price of a room at the Exhilaration were to decrease by 10%, from $250 to $225, while all other demand factors remain at their initial values, ▼ from Z , hotel rooms at the Triple Sevens and hotel rooms at the Exhilaration are the quantity of rooms demanded at the Triple Sevens |rooms per night to| rooms per night. Because the cross-price elasticity of demand is Triple Sevens 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 Triple Sevens is operating on the v portion of its demand curve. PRICE (Dollars per room)
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