Question

A 60 room hotel is filled to capacity every night at a rate of​ $40 per room. The management wants to determine if a rate increase would increase their profit. They are not interested in a rate decrease. Suppose management determines that for each​ $2 increase in the nightly​ rate, five fewer rooms will be rented. If each rented room costs​ $8 a day to​ service, how much should the management charge per room to maximize​ profit?

Answer 1

Answer: to maximize profit the management must continue charging $40 per room because it will obtain a profit of $1,920 better than $1,870 if it rises the rate.

Step-by-step explanation:

Profit without the increase

60 (number of rooms)  * $40 (rate per room)  = $ 2,400

costs of day to service = 60 (rooms) * $8 (costs day to service)= $480

Total Profit = $2,400 - $480 = $1,920

Profit with the increase

55 (5 fewer than before) * 42  (rate with the increase) = $ 2,310

costs of day service 55 (rooms) * 8 ( costs day to service) = $440

Total Profit  = $2,310 -$440 = $1,870