A hotel is deciding how many reservations to accept for major one-night event in Indianapolis. The hotel has 180 rooms available. Managers believe that 92 percent of those with a reservation will actually show up. An empty room costs the hotel $175 per room. However, if the hotel oversells the rooms, and more than 180 customers show up, the hotel will need to make other arrangements for these guests. The cost of placing these extra guests in other accomodations is $375 per room needed. How many rooms should the hotel sell for this particular night to minimize their costs? +xls

Hotel A, Indianapolis

The number of rooms that the hotel should sell for this particular night to minimize their costs is:

= 196 rooms.

Explanation:

a) Data and Calculations:

Hotel rooms available = 180

Expected percentage of reservations that will actually show up = 92%

Cost per empty room = $175

Cost per room for overbooking and placing extra guests in other accommodations = $375

The number of rooms to sell this particular night to minimize costs = 180/92% = 196 rooms

Booking 196 rooms will ensure that the maximum rooms are fully taken by the reservationists and the hotel can only incur a probable cost of $375 per overbooked guest.

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