Hotel California is a luxury hotel which has just got a new manager, Rocky. Given its location and quality, the hotel always had enough people making, reservations to fill up all the rooms available. The hotel charges $200 per room per night for reservations made in advance. Rocky had heard about revenue management in one of the seminars and decided to implement some of those techniques in his current job. He implemented a policy of keeping some rooms free for last-minute requests and charges these requests $300 per room per night. Currently, the hotel keeps 3 rooms free to accommodate last minute requests. After a month of implementing this policy, the hotel management reviewed their records and found the following. (No need to calculate all the probabilities below to answer questions.) a) How much is the cost of reserving too little by one? That is the underage cost, Cu
b) How much is the cost of reserving too much by one? That is the overage cost, Co
c) What is the optimal service level?
d) How many rooms should be reserved for last-minute customers? Hint: what is Q"?
e) What is the underage cost for keeping one room available for last-minute requests?