Question

For each of the following scenarios, begin by assuming that all demand factors are set to their original values and Peacock is charging $200 per room
per night
&
If average household income increases by 20, from $50,000 to $60,000 per year, the quantity of rooms demanded at the
Peacock from rooms per night to rooms per night. Therefore, the income elasticity of demand is
hotel rooms at the Peacock are
meaning that
ols
If the price of an airline ticket from LAX to LAS were to increase by 10%, from $100 to $110 roundtrip, 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 crosse
price elasticity of demand is
hotel rooms at the Peacock and airline trips between LAX and LAS are
Eiples of
Peacock 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 Peacock is operating on
portion of its demand curve
the

Answer 1

Solution and Explanation:

For every one of the accompanying situations, start by expecting that all interest factors are set to their unique qualities and Peacock is charging $300 per room every night.  

1) If the normal family unit pays increments by 20%, from $50,000 to $60,000 every year, the amount of rooms requested at the Peacock ascends from 200 rooms every night to 250 rooms every night. Accordingly, the pay flexibility of interest is certain, implying that lodgings at the Peacock are ordinary products.  

Explanation: Income elasticity of demand = 25% divide by 20% = 1.3

At the point when raise in salary prompts an expansion in the amount requested (or a fall in pay prompts a fall in the amount requested), the great is known as an ordinary decent.  

2) In the event that the cost of an aircraft ticket from JFK to LAS was to increment by 10%, from $200 to $220 roundtrip, while all other interest factors stay at their underlying qualities, the amount of rooms requested at the Peacock tumbles from 200 rooms for every night to 150 rooms for each night. Since the cross-value versatility of interest is negative, lodgings at the Peacock and aircraft trips among JFK and LAS are supplements.

Explanation: Cross elasticity of demand = -25% divide by 10% = -2.5

Two merchandise ordered supplements when a raise the cost of one great abatement the amount requested of the other or when a fall in the cost of one great expands the amount requested of the other.  

3) Peacock is discussing diminishing the cost of its rooms to $275 every night. Under the underlying interest conditions, you can see this would make its all-out income increment. Diminishing the cost will consistently have this impact on income when Peacock is working on the flexible part of its interest bend.  

Explanation: Total revenue = $300 per room per night multiply with 200 rooms = $60,000 per night

By bringing down its cost to $275, Triple Sevens can occupy 225 rooms. In such situation, all-out income is $275 per room every night multiply 225 rooms = $61,875 every night  

At the point when the request is versatile, the rate change in cost is littler than the rate change in an amount as the purchasers are exceptionally delicate to changes in cost.