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Homework answers / question archive / 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
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 Round trip airfare from New York (JFK) to Las Vegas (LAS) $100 per round trip Room rate at the Grandiose Hotel and Casino, which is near the Peacock $200 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 Peacock's Hotel Rooms 500 450 150 400 Price (Dollars per room) Quantity Demanded (Hotel rooms per night) 350 350 300 PRICE (Dollars per room) 250 Demand Factors 200 150 Demand 40 100 Average Income (Thousands of dollars) Airfare from JFK to LAS (Dollars per round trip) 50 100 0 0 50 100 150 200 250 300 350 400 450 500 QUANTITY (Hotel rooms) 200 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 that Peacock is charging $150 per room per night. from If average household income increases by 25%, from $40,000 to $50,000 per year, the quantity of rooms demanded at the Peacock 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 20%, from $200 to $160, 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 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 $125 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.
