Question

Question 1 12.5 pts Sugar Bay is an exclusive resort on a large popular vacation island in the Caribbean. It sells subscriptions to guests which gives them priority booking on dates for vacations with many amenities included (massages, boat rentals, liquor packages, etc.). Others are allowed at the resort if rooms are available, but they do not receive the amenity package. The resort has always been able to accommodate both the subscribers and the other guests. In 2018 a major storm destroyed many of the resorts on the island as well as much of Sugar Bay. In rebuilding the management decided to raise rates in for both groups in 2019. Now at the end of the season, it is studying the impact of raising room rates for both groups from $345/night to $425/night. As the price of rooms increases from $345 to $425, what is the price elasticity of demand for subscription holders. Use the midpoint method in your calculations and round all answers to the hundredths place. Show your work here. Put your answer into the next question. Quantity Demanded non-subscription Quantity Demanded Price Year subscription 165 rooms 400 rooms $225 2016 90 rooms 320 rooms $295 2017 80 rooms 305 rooms $345 2018 55 rooms 295 rooms $425 2019

Answer 1

Answer = -0.16

The mid-point method for finding the price elasticity of demand is;

Price elasticity of demand = (Q,- Q,/[(Q,+Q,)/2] (P;-P)/(P, +P)/2]

In the questions given,

Q₁ = 305 rooms, P₁ = $345

Q₂ = 295 rooms, P₂ = $425

E_d = (295 - 305)/ [(295+305)/2] / (425 - 345)/[(425+345)/2]

= (-10/300) / (80/ 385)

= -0.16