Scenario 3 (length: as needed) Suppose the hotel in the lecture example raised i

Question

Scenario 3 (length: as needed)
Suppose the hotel in the lecture example raised its price from $30 to $30.50. With the new price, the hotel expects 96 guests to arrive 5% of the time, 97 guests 10% of the time, 98 guests 20% of the time, 99 guests 30% of the time, 100 guests 25% of the time and 101 guests 10% of the time. The variable costs per occupied room and overbooking costs are the same as in the lecture.

1.      Calculate the expected revenue, expected variable costs and expected costs from overbooking.

2.      Using marginal analysis, should the hotel raise its price? Explain your answer.

Explanation / Answer

expected number of guests

= 0.05 * 96 + 0.1 * 97+ 0.2 * 98 + 0.3 * 99 + 0.25 * 100 +0.1 * 101

= 98.9

= 99 guests

expected revenue = 99 * 30.50 =3019.50

expected variable cost = 99 * (varibalecost given in lecture)

expected costs from overbooking = (99 - maximum allowed guests) given in lecture

2)

expected profit = 3019.50 - 99 * (varibalecost given in lecture) - (99 - maximum allowed guests) given in lecture

marginal cost = (expected profit - profit when price is 30(given in lecture))/0.50

if marginal cost is positive , hotel should raise its price

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