Calculate Impact on Income Using Demand Function

Question

As the manager of a local hotel chain, you have hired an econometrician to estimate the demand for one of your hotels (H). The estimation has resulted in the following demand function:

Q_h = 2,000 – P_h – 1.5P_c -2.25P_se + 0.6P_oh + .02M

Where P_h is the price of room at your hotel, P_c is the price of concerts in your area, P_se is the price of sporting events in your area, P_0h is the average room price at other hotels in your area and M is the average income in the United States.

What is the impact of raising hotel room prices by $35 but you give out a free ticket to a soccer game worth $20? How many fewer (or more) rooms will be reserved? Note—you have to buy the soccer tickets for $20.

Summary

This question belongs to micro economics and discusses about increase in income using demand function

Total Word Count 17