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Kristy, Managerial Economics

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Rail Tours sells packaged tours on rail lines, including gourmet meals and a reserved bed. The most popular tours are in the autumn when 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 prices is raised to $225, unit sales drop to 380. 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 probably fall by 2%.
a. If the demand curve is extrapolated from the data points given, what is the equation for demand? Are there any precautions in extending the curve in this matter?
b. Are tours normal or inferior goods? Why?
c. If you were responsible for making a forecast for bookings, would you accept this forecast as is? Would you wand additional information about demand? If so, what sort? Explain.

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