Reference no: EM131201112

Rail Tours, Inc. sells packaged tours on rail lines, including gourmet meals and a reserved bed. The most popular tours are in the autumn, when foliage colors are at their peak. The overnight package for Saturday and Sunday morning are especially heavily booked. A market survey firm has just completed a study in which they conclude that if the package cost is $200 per couple, then Rail Tours can expect to sell 400 spaces on a typical Saturday. If the price is raised to $225, then unit sales will drop to 390. If the price is raised further to $250, unit sales drop to 380.

(a) From the data given, write down the demand equation and determine its intercepts. Are there any precautions needed when operating at the extreme ends of the demand curve?

(b) The survey firm also reports that if per capita income changes, Rail Tours can expect a large change in bookings. In particular, if per capita income falls by 1%, then bookings will tend to fall by about 2%. Are tour packages a normal good? Explain.

(c) If you were responsible for making a forecast for bookings, would you accept this forecast as is? Or would you want additional information about demand? Explain.