As the manager of a hotel, you want to increase occupancies by 6%......?

It has been determined that the price elasticity of demand for rooms in your hotel is 0.5. This informaion implies?





a) the demand for rooms in your hotel is elastic.


b) if you lower your rates by 12%, then you will increase occupanciesby 6%.


c) if you lower your rates, your total reevenue will rise.


d) there must be many substitutes for your hotel services.As the manager of a hotel, you want to increase occupancies by 6%......?
the answer is bAs the manager of a hotel, you want to increase occupancies by 6%......?
Correct Answer:





B: The price elasticity (of demand) is 0.5, meaning for every $1 increase in price, the quantity demanded will decrease by $0.5, vice versa.





Wrong Answers:





C: Because the demand is fairly unresponsive to price changes, so the increase in revenue caused by the increase in quantity demanded will be less than the decrease in revenue from smaller profit margins; there is a net fall in revenue.





A: Price Elasticity is of Demand (PED) figure determines whether or not a good is (in)elastic in demand.


Relatively Inelastic: 0%26lt;n%26lt;1


Unit Elastic: n = 1


Relatively Elastic: 1%26lt;n%26lt;inf.


Therefore, the demand for hotel rooms is price elastic.





D: For the elasticity of demand to be 0.5, or inelastic, the service must have few close substitutes (eg. other hotels in the area, motels, etc.).