Question

The Stone Lion, a bed and breakfast located in a sleepy town, caters to two groups of customers, young couples interested in something marginally more exotic than a staycation, and corporate clients interested in doing some team-building at a location with no cellular service. Corporations know they can get rooms with minimal notice, but young couples on tight budgets tend to plan well in advance of their planned stay at the property. The corporate rate for rooms is $250 per person and the demand pattern is normal with a mean of 20 and a standard deviation of 10. The

proprietor of the Stone Lion takes pity on the young couples and charges them only $150 for identical accommodations.

I. How many rooms should be reserved for corporate clients?

II. If the price young couples are willing to pay increases by 50%, how many rooms should be reserved for corporate clients?

II. If the corporate demand and standard deviation both decrease by 50%, how many rooms should be reserved for corporate clients?

IV. What is the difference in the number of rooms that should be held by the Stone Lion if the standard deviation of corporate demand increases by five and if it decreases by five? 

V. If the corporate price and young couples' price both double, how many additional rooms should the Stone Lion hold for corporate clients?

Answer 1

IV.

V. New corporate rate = 250*2 = 500

New couples' price = 150*2 =300

Cu = 500-300 = 200

Co = 300

Critical raio = Cu/(Cu+Co) = 200/(200+300) = 0.4

This is same as part I. Therefore, number of rooms remains same as calculated in part I = 17