Consider luxury weekend hotel packages in Las Vegas.When the price is $250,the quantity demanded is 2,000 packages per week.When the price is $280,the quantity demanded is 1,700 packages per week.Using the midpoint method,the price elasticity of demand is about
A)1.43,and an increase in the price will cause hotels' total revenue to decrease.
B)1.43,and an increase in the price will cause hotels' total revenue to increase.
C)0.70,and an increase in the price will cause hotels' total revenue to decrease.
D)0.70,and an increase in the price will cause hotels' total revenue to increase.

Question

Quizplus · Accepted Answer

Using the midpoint method, we get the price elasticity of demand as follows:

Price elasticity of demand = [(Q2-Q1)/((Q2+Q1)/2)] / [(P2-P1)/((P2+P1)/2)]
= [(1700-2000)/((1700+2000)/2)] / [(280-250)/((280+250)/2)]
= -0.374 / 0.117
= -3.196

Since the price elasticity of demand is greater than 1, demand is elastic. An increase in price will cause a more than proportionate decrease in quantity demanded, therefore hotels' total revenue will decrease.

Therefore, the best answer choice is A.

Consider Luxury Weekend Hotel Packages in Las Vegas