Question

A). (Worth 25 points). The MICRO INN Hotel charges $15 per person for breakfast and serves approximately 100 guests per day. A local coffee shop, a few blocks away, charges $10 for breakfast and serves approximately 200 customers per day. When the MICRO INN increased the price for its breakfast to $18, the number of guests having breakfast in the hotel decreased to 90 and the number of customers having breakfast in the local coffee shop increased to 210, inswer the following questions 1) Calculate the price elasticity of demand for breakfasts in the MICRO INN. 2) How would you term this demand for breakfast in the hotel? Price elastic, or price inelastic? Please explain. 3) Calculate the change in the MICRO INN's total revenues from breakfasts. Do you expect the revenues of the hotel to increase, decrease or remain unchanged? Please explain. 4) Calculate the cross elasticity of demand for breakfasts in the MICRO INN and the local coffee shop. 5) Is breakfast in the two places a substitute, a complementary or a not related service? Please explain.

Answer 1

ANSWER

PFA the solution

Answer Griven, for breakfast MICROINN Charges amouet sis/ person Pm= $15 Am = poo I'm = $18 Cim = 90 Increased Price, Local coffee shop q=$10 02 - 200 ai = 210 e ince cloth elasticidy of Demand Yor breakfasts the Ed= I'm-am Por Pn-Pm 90-100 15 = -xam 100 3 18-15 Too = -0.5 5 As elasticity of demand is less than 11-0541), the price elasticity 07 Detvand is inelasho. 6 Revenue earlier, for MICRO INN Revenue = Pan Am = 15*100 1,500