Question

Consider luxury weekend hotel packages in Las Vegas. When the price is $250, the quantity demanded is 2,000packages per week. When the price is $280, the quantity demanded is 1,700 packages per week. Using the midpointmethod, the price elasticity of demand is abouta. 1.43, and an increase in the price will cause hotels' total revenue to decrease.b. 1.43, and an increase in the price will cause hotels' total revenue to increase.c. 0.70, and an increase in the price will cause hotels' total revenue to decrease.d. 0.70, and an increase in the price will cause hotels' total revenue to increase.

Answer 1

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  $\frac{Q2-Q1}{(Q2+Q1)/2} *100$ and for the price is $\frac{P2-P1}{(P2+P1)/2} *100$. 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.