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: QH = 2,000 - PH - 1.5PC + 0.8POH + 0.01M, where PH is the price of a room at your hotel and M is the average income in the United States.

(a) Try to guess what do PC and POH refer to and explain briefly.

(b) Please advise the pricing strategy that our hotel can be used to boost the profit if the values of PH, PC, POH and M are $120, $150, $80 and $4000 respectively (show clearly your calculation step).

(c) Besides the factors mentioned in the equations, provide TWO more factors affecting the demand for our hotels and predict how these factors affecting the quantity demanded of our hotels.

Answer rating: 100% (QA)

a The POH must be the price of other hotels room as the positive sign indicates the direct relations... View the full answer