(Solved): 20. Application: Elasticity and hotel rooms The following graph input tool shows the daily demand ...

20. Application: Elasticity and hotel rooms 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. 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 Lakes's Hotel Rooms Price (Dollars per room) Quantity Demanded (Hotel rooms per night) Demand Factors Average Income (Thousands of dollars) Airfare from MSY to \( \mathrm{ACY} \) (Dollars per roundtrip) Room Rate at Mountaineer (Dollars per night) For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Lakes is charging \( \$ 300 \) 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 Lakes from rooms per night to rooms per night. Therefore, the income elasticity of demand is meaning that hotel rooms at the Lakes are If the price of a room at the Mountaineer 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 Lakes from rooms per night to rooms per night. Because the cross-price elasticity of demand is , hotel rooms at the Lakes and hotel rooms at the Mountaineer are Lakes is debating decreasing the price of its rooms to \( \$ 275 \) 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 Lakes is operating on portion of its demand curve.