If the price index has a value of 122 then the inflation rate during the past year was 22%. True or False
1 answer:
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Answer:
The elasticity is about 1.43, and an increase in the price will cause hotels' total revenue to decrease
Explanation:
The formula of the midpoint for the variation of the quantity is and for the price is
. With the variation of the price and the quantity the elasticity formula is ΔQ/ΔP. Replacing the elasticity is -1.43
The price elasticity of the demand is bigger than 1, that means that the demand is elastic, every increase of the price will cause a bigger decrease of the quantity, the revenue will drop because the increase of the price do not compansete the decrease of the quantity.