Airbnb has run a linear regression to attempt to predict demand for vacation rentals in the Palm Springs area. Q is square footage of rental space per month, p is the average price of Airbnb rental per square foot, pc is average price of non-Airbnb rental space per square foot, and I is the average monthly income of vacation renters. The regression results are summarized by the predicted equation
Q = 100 – 10p + 9pc + (.01)I.
Currently, p = pc = $5 and I = $8000. Use these numbers for the questions below and round to two decimal places.
a. Airbnb's own point price elasticity of demand is
b. Using your point elasticity from question a as your only estimate, the effect on revenue of a 4% increase in own price is
c. Compute the income elasticity of demand for Airbnb. Using this alone, the % effect on revenue of a 5% increase in income is
d. Compute the cross price elasticity of demand for Airbnb. Using this and your answer to question b above, the % effect on revenue of a 1% decrease in p and a 1% decrease in pc is