If average household income increases by 50%, from $40,000 to $60,000 per year, the quantity of rooms demanded at the triple sevens from rooms per night to rooms per night. therefore, the income elasticity of demand is , meaning that hotel rooms at the triple sevens are . if the price of a room at the exhilaration were to decrease by 20%, from $200 to $160, while all other demand factors remain at their initial values, the quantity of rooms demanded at the triple sevens from rooms per night to rooms per night. because the cross-price elasticity of demand is , hotel rooms at the triple sevens and hotel rooms at the exhilaration are . triple sevens is debating decreasing the price of its rooms to $175 per night. under the initial demand conditions, you can see that this would cause its total revenue to . decreasing the price will always have this effect on revenue when triple sevens is operating on the portion of its demand curve.

Suppose that a major city’s main thoroughfare, which is also an interstate highway, will be completely closed to traffic for two years, from january 2014 to december 2015, for reconstruction at a cost of $535 million. if the construction company were to keep the highway open for traffic during construction, the highway reconstruction project would take much longer and be more expensive. suppose that construction would take four years if the highway were kept open, at a total cost of $800 million. the state department of transportation had to make its decision in 2014, one year before the start of construction (so that the first payment was one year away). so the department of transportation had the following choices: (i) close the highway during construction, at an annual cost of $267.5 million per year for two years. (ii) keep the highway open during construction, at an annual cost of $200 million per year for four years. now suppose the interest rate is 80%. calculate the present value of the costs incurred under each plan.