Reference no: EM1317060

You have been hired to work with a resort owner in Northern Minnesota. This resort owner runs a very small operation catering to mostly people who like to fish. The owner has 20 cabins and a small store that sells bait, a little tackle, and lots of junk food. During a typical summer, the cabins average 80% occupancy and rent for $80 per night. The season runs from May 1 to September 30 or about 5 months with 30 days per month. Once families check into the resort they generally don't want to drive around when they cold spend the time fishing and playing in the lake. As a result the store generally has about 10 sales per day that a cabin is rented. Each sale averages about $10. The owners are interested in increasing their revenue so they are proposing increasing both cabin prices and store prices by 10%. They figure the coefficient of price elasticity for the cabins is 2.4 and for the store it is .8. Their goal is to increase revenue so they can buy a nicer condominium in Florida where they spend their winters.

a. What is the current total revenue before any prices are changed?
b. By how much will total cabin revenue change if prices increase by 10%
c. By how much will total revenue change if both cabin and store prices increase by 10%
d. Does it seem logical that the price elasticity of demand is elastic for the cabins and inelastic for the store?
e. Should they raise prices?