Comfort Hotel has sold 2,800 rooms with an ADR of $110.00 during the recent month. The...
Comfort Hotel has sold 2,800 rooms with an ADR of $110.00 during the recent month. The management is planning to decrease the current ADR to $70.00 for the next month. This reduction in ADR will affect the guest demand by increasing the number of rooms sold to 4,200 rooms. Is the price elasticity of this demand elastic or inelastic (show your calculations)?
Homework Answers
| ADR | Number of rooms sold | |
| $110 | 2,800 | |
| $70 | 4,200 | |
| Change | $40 | 1,400 |
| Percentage change | 40/110 = 36.36% | 1,400/2,800 = 50% |
Price elasticity of demand = Percentage change in quantity demanded/Percentage change in price
= 50%/36.36%
= 1.375
Since coefficient of Price elasticity of demand is more than 1, hence price elasticity of this demand is elastic.
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