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Question: 5 as the manager of a local hotel chain you...

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5. As the manager of a local hotel chain, you have hired an econometrician to estimate the demand for one of your hotels (H). The estimation has resulted in the following demand function:

QH = 2,000 - PH - 1.5PC - 2.25PSE + 0.8POH + 0.01M

where PH is the price of a room at your hotel, PC is the price of concerts in your area, PSE is the price of sporting events in your area, POH is the average room price at other hotels in your area, and M is the average income in the United States. What would be the impact on your firm of on demand of hotels in the area: (6points)

a. A $500 increase in income?

b. A $10 reduction in the price charged by other hotels?

c. A $5 increase in the price of concert tickets, accompanied by an $8 increase in income

4. Suppose the price elasticity of demand for cigarettes is -0.4. The FDA decides to regulate tobacco production, which increases the price of cigarettes and causes the quantity of cigarettes demanded to decrease by 25 percent. What is the percentage increase in price, which would lead to the 25 percent decrease in quantity demanded? If the price elasticity was -4, what would be the percentage increase in price? (3points)

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