If average household income increases by 50%, from $40,000 to $60,000 per year, the quantity of rooms demanded at the Peacock fromrooms per night torooms per night. Therefore, the income elasticity of demand is , meaning that hotel rooms at the Peacock are . If the price of a room at the Grandiose were to decrease by 20%, from $200 to $160, while all other demand factors remain at their initial values, the quantity of rooms demanded at the Peacock fromrooms per night torooms per night. Because the cross-price elasticity of demand is , hotel rooms at the Peacock and hotel rooms at the Grandiose are . Peacock is debating decreasing the price of its rooms to $175 per night. Under the initial demand conditions, you can see that this would cause its total revenue to . Decreasing the price will always have this effect on revenue when Peacock is operating on the portion of its demand curve.