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A hotel wants to analyze its room pricing prior to a major promotional effort. Currently the standard room rate is $150 per night. The market segment had an elasticity of demand to price equal to -1.5. That means that when the price is reduced by 10% (say) the demand for rooms increases by 15%. So the % change in the demand for rooms can be expressed as: =Elasticity* % change in price (note that a decrease in price is a negative change.) e.g.: if the new price is $120 per night the % change in price is (120-150)/150= -20% and the resulting % change in demand for rooms is (-1.5) * (-20%) = 30% The current daily demand for rooms can be modelled as a normally distributed random variable with a mean of 250 and a standard deviation of 20. The revenue per night is calculated as the daily demand for rooms * the price per night. Use a simulation model to recommend a new price from a range of $110 to $150 per night in increments of $5.

A hotel wants to analyze its room pricing prior to a major promotional effort. Currently the standard room rate is $150 per night. The market segment had an elasticity of demand to price equal to -1.5. That means that when the price is reduced by 10% (say) the demand for rooms increases by 15%. So the % change in the demand for rooms can be expressed as: =Elasticity* % change in price (note that a decrease in price is a negative change.) e.g.: if the new price is $120 per night the % change in price is (120-150)/150= -20% and the resulting % change in demand for rooms is (-1.5) * (-20%) = 30% The current daily demand for rooms can be modelled as a normally distributed random variable with a mean of 250 and a standard deviation of 20. The revenue per night is calculated as the daily demand for rooms * the price per night. Use a simulation model to recommend a new price from a range of $110 to $150 per night in increments of $5.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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A hotel wants to analyze its room pricing prior to a major promotional effort. Currently the standard room rate is $150 per night. The market segment had an elasticity of demand to price equal to -1.5. That means that when the price is reduced by 10% (say) the demand for rooms increases by 15%. So the % change in the demand for rooms can be expressed as: =Elasticity* % change in price (note that a decrease in price is a negative change.) e.g.: if the new price is $120 per night the % change in price is (120-150)/150= -20% and the resulting % change in demand for rooms is (-1.5) * (-20%) = 30% The current daily demand for rooms can be modelled as a normally distributed random variable with a mean of 250 and a standard deviation of 20. The revenue per night is calculated as the daily demand for rooms * the price per night. Use a simulation model to recommend a new price from a range of $110 to $150 per night in increments of $5.
Transcribed Image Text:A hotel wants to analyze its room pricing prior to a major promotional effort. Currently the standard room rate is $150 per night. The market segment had an elasticity of demand to price equal to -1.5. That means that when the price is reduced by 10% (say) the demand for rooms increases by 15%. So the % change in the demand for rooms can be expressed as: =Elasticity* % change in price (note that a decrease in price is a negative change.) e.g.: if the new price is $120 per night the % change in price is (120-150)/150= -20% and the resulting % change in demand for rooms is (-1.5) * (-20%) = 30% The current daily demand for rooms can be modelled as a normally distributed random variable with a mean of 250 and a standard deviation of 20. The revenue per night is calculated as the daily demand for rooms * the price per night. Use a simulation model to recommend a new price from a range of $110 to $150 per night in increments of $5.
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