Answer:
Hotel California
a) The cost of reserving too little by one, (the underage cost) Cu
= $100
b) The cost of reserving too much by one, (the overage cost) Co =
= $200
c) The optimal service level
= 0.33
d) The number of rooms that should be reserved for last-minute customers, Q
= 3
Explanation:
a) Data and Calculations:
Charges per room per night (purchase cost) = $200
Charges for last-minute requests per room per night (selling price) - $300
Value of unsold reserved rooms (Salvage value) = $0
Minimum of last-minute customers, Min = 1
Maximum of last-minute customers, Max = 10
a) The cost of reserving too little by one, (the underage cost) Cu = Selling price - Purchasing cost
= $300 - $200
= $100
b) The cost of reserving too much by one, (the overage cost) Co = Purchasing cost - Salvage value
= $200 - $0
= $200
c) The optimal service level = Cu/Co+Cu
= $100/$200 + $100
= $100/$300
= 0.33
d) The number of rooms that should be reserved for last-minute customers, Q
= Cu/Co+Cu (Max - Min) + Min
= 0.33 * (10 - 1) + 1
= 0.33 * (10)
= 3
