Answer: to maximize profit the management must continue charging $40 per room because it will obtain a profit of $1,920 better than $1,870 if it rises the rate.
Step-by-step explanation:
Profit without the increase
60 (number of rooms) * $40 (rate per room) = $ 2,400
costs of day to service = 60 (rooms) * $8 (costs day to service)= $480
Total Profit = $2,400 - $480 = $1,920
Profit with the increase
55 (5 fewer than before) * 42 (rate with the increase) = $ 2,310
costs of day service 55 (rooms) * 8 ( costs day to service) = $440
Total Profit = $2,310 -$440 = $1,870
If you want to maximize profit, you should not make changes to the nightly rate.
Since a 60 room hotel is filled to capacity every night at a rate of $ 40 per room, and the management wants to determine if a rate increase would increase their profit, and they are not interested in a rate decrease, supposing management determines that for each $ 2 increase in the nightly rate, five fewer rooms will be rented, if each rented room costs $ 8 a day to service, to determine how much should the management charge per room to maximize profit the following calculation should be done:
Therefore, if you want to maximize profit, you should not make changes to the nightly rate.
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