Answer to Question #218031 in Microeconomics for jaya

Question #218031

Singapore hotels 51% full in Feb 2020, room revenues plunge 40%:

STB


SINGAPORE hotels were only half-filled in February, resulting in a 40 per cent plunge

in room revenues, as coronavirus fears threaten to bring the global travel industry to a

grinding halt, according to data from the Singapore Tourism Board (STB).

While the average room rate in February 2020, at S$230 per night, saw a 2.3 per cent

year-on-year gain, the revenue per available room was down to S$117, representing a

41 per cent year-on-year drop. These statistics came ahead of widespread border

closures and national lockdowns across the world, as it was in March that the Covid-19

outbreak was declared a global pandemic by the World Health Organization.




(iii) Given that a 2.3% rise in the average room rate caused a 41% fall in revenue per

room, deduce the price elasticity of demand for hotel rooms. Use a relevant factor

of price elasticity of demand and a diagram to justify your answer.

(6 marks)




1
Expert's answer
2021-07-20T09:49:55-0400

(iii) Given that a 2.3% rise in the average room rate caused a 41% fall in revenue per room, the demand for hotel rooms is elastic, because rise in price caused comparatively higher fall in quantity demanded.

So, to rise total revenue the company should lower the average room rate.


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