A Hotel Chain Is Considering Using Yield Management to Increase

question 94

Essay

A hotel chain is considering using yield management to increase profits. Its plan is to sell unsold rooms at a discounted rate very close to the night of stay. For example, an unsold Friday night room would be discounted early in the week. It estimates that the percentage of sold rooms (total) would be equal to 50+X, where X is the % discounted off of regular price. Meanwhile the % of rooms sold for full price compared to the discount would be 100-2X (some people would wait to book gambling a discount would happen). Find the ideal discount %.

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Definitions:

Useful Life

The estimated duration a long-term asset is expected to be economically utilizable before it needs to be replaced or significantly overhauled.

Net Operating Income

The profit generated from a company's core business operations, excluding income and expenses from non-operational activities.

Traceable Fixed Expense

Fixed costs that can be directly associated with a specific cost object, such as a product, department, or project.

Net Operating Income

A company's profit after subtracting operating expenses but before deducting interest and taxes.