Protection level for high fare to maximize expected revenue

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Reference no: EM131367048

Inn at Penn has 200 rooms. For regular-fare customers, rooms are priced at $300 per night while the rooms are priced at $600 per night for the high-paying customers who generally arrive at the last minute. The demand for such high fare customers is distributed normally with mean 60 and standard deviation 25 (this standard deviation is high relative to the mean, but use it anyway). Assume that there is ample demand for regular-fare customers.

A) What should the protection level for the high fare be to maximize expected revenue?

B) Suppose that Inn at Penn operates with the protection level of 80 rooms for high fare customers. On average, how many high-fare customers are turned away because of lack of rooms?

C) Why does revenue management maximize expected revenue instead of expected profit? How might the protection level calculation procedure and optimal protection level value change if we sought to maximize expected profit?

Reference no: EM131367048

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