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.Calculate the expected revenue, expected variable costs and expected costs from overbooking.Using marginal analysis, should the hotel raise its price? Explain your answer.

Expected revenue can be calculated by multiplying the number of guests with the price given in the question. By working out the calculations if the marginal cost comes positive then the hotel should raise its price.

DATA

Expected number of guests = (5% x 96) + (10% x 97) + (2% x 98) + (30% x 99) + (25% x 100) + (10% x 101)

Expected number of guests = 98.9 or 99 guests

Expected revenue = 99 x 30.50 = $3019.50

Expected variable cost = 99 x (varibale cost given in the lecture)

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

Expected profit = 3019.50 - 99 x (varibale cost given in lecture) - (99 - maximum allowed guests) given in lecture

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

NOTE: Data given in the question lacks information such as variable cost given in the lecture.