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Booking/Overbooking at SleepyTime Hotel: Early and Late Booking Demand and Standard Deviation

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The manager of the 420-room SleepyTime Hotel is trying to decide how many rooms to reserve for vacationers who book less than two weeks in advance. Demand for the "early booking" rooms is unlimited at the price of $240/day. Demand for the "late booking" rooms averages around 120 rooms/day, and varies by about 15 rooms/day. The rate for 'late booking' rooms is $320/day.

How many rooms should be held for "late booking" and "early booking?"

Assuming there will be no change in demand caused by changes in price, what price would need to be charged for "late booking" rooms in order to justify holding 120 rooms for "late bookers?"

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Solution Summary

This solution provides a step-wise response and calculates how many rooms should be held for late and early bookings and the price that should be charged for late bookings in order to justify holding 120 rooms for them. All calculations are included.

Solution Preview

The average "late booking" room is 120 and the standard deviation is 15. We can pick up a 95% level of confidence as the decision criteria. (Of course you can choose 100%, but it won't be very feasible ...

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