Q 168 Consider the example of the Park Hyatt Philadelphia di

Consider the example of the Park Hyatt Philadelphia discussed in the text. Recall that the full fare is $225, the expected full-fare demand is Poisson with mean 27.3, the discount fare is $159, and there are 118 king/queen rooms. Now suppose the cost of an occupied room is $45 per night. That cost includes the labor associated with prepping and cleaning a room, the additional utilities used, and the wear and tear on the furniture and fixtures. Suppose the Park Hyatt wishes to maximize expected profit rather than expected revenue. What is the optimal protection level for the full fare?

Solution

Optimal high fare protection level is given by

r_H = 225, r_L = 159

substituting these values above we have

Q= (225-159)/225 = 0.2933

optimal low fare booking limit = 118-Q

Poison distribution with mean =27.3 is 24

Hence, 24 rooms should be protected for the high fare travellers. Similarly a booking limit of 118-24=94 has to be applied to the low fare reservations.