Room Pricing in the OffSeason

Group Project #2
Deanne Giles, Mohammad Safi, Rob Halgren, Raul Elias
7/5/2012

Introduction
We finished our analysis of the data from a survey of resort hotels with comparable rates on Hilton Head Island, to show that room occupancy during the offseason (November through February) is related to the prices charged for basic rooms. The price per day that will maximize the off-season profit for this typical hotel applies to this group of hotels. We were asked to find the room price per day that will maximize the daily revenue ,and the room price per day that will maximize the profit for this hotel (and thus the group of hotels) in the off-season. To achieve these goals, they asked us to complete the following steps: A. What price per day will maximize the daily off-season revenue for a typical hotel in this group if it has 200 rooms available? B. Suppose that for this typical hotel the daily cost is $5510 plus $30 per occupied room. What price will maximize the profit for this hotel in the off-season? We were also asked to find the room price per day that will maximize the daily revenue, which we can accomplish by the following steps: 1. Multiply each occupancy rate by 200 to get the hypothetical room occupancy. 2. Use technology to create an equation that models the revenue. 3. Use maximization techniques to find the price that these hotels should charge to maximize the daily revenue. 4. Use technology to get the occupancy as a function of the price, and use the occupancy function to create a daily cost function. 5. Form the profit function. 6. Use maximization techniques to find the price that will maximize the profit.

Analysis
Through our analysis we were able to give the company the following answers to their questions using the following information: 1. Multiply each occupancy rate by 200 to get the hypothetical room occupancy. Create the revenue data points that compare the price with the revenue, R, which is equal to price times the room occupancy.

2. Use technology to create an equation that models the revenue, R, as a function

of the price per day, x.

3. Use maximization techniques to find the price that these hotels should charge to maximize the daily revenue. Y= -1.4718x+234.8= 0 Y= 159.53 Y= -1.4718 < 0 = max = -.7359(159.53)2+234.8(159.53)-5463.7 Max Revenue= 13265.42

4. Use technology to get the occupancy as a function of the price, and use the occupancy function to create a daily cost function.

Occupancy Function = -.4693x+157.13 Daily Cost Function = 30(-.4693x+157.13)+5510

5. Form the profit function. = -.7359x2+234.8x-5463.7-30(-.4693x+157.13)+5510 = -.7359x2+234.8x-5463.7+14.079x-4713.9+5510 P(x) = -.7359x2+248.879x-4667.6 6. Use maximization techniques to find the price that will maximize the profit. Y= -1.4718x+248.879=0 1.4718x/ 1.4718 = 248.879 /1.4718 =169.09 Y= -1.4718 < 0 = max Profit Max= 169.09

Conclusion
When we figure out what price per day will maximize the daily off-season revenue for a typical hotel in this group (if it has 200 rooms available), we found that we needed to find out the revenue and cost for each, and the functions for both. We stated by multiplying each occupancy rate by 200 to get the hypothetical room occupancy. We use this information to create an equation that models the revenue as a function of price per day. We then found (by using maximization techniques) the maximum revenue, which was $13265.42. We used the derivative of our revenue function to find the maximum, and used the second derivate test to find out if it was a maximum or minimum. Our next step was to find a occupancy function, which we determined was equal to -.4693x+157.13. From function we derived we were able to determine a daily cost function by adding the daily cost of $5510 plus $30 per occupied room in the off-season. The function turn out to be 30(-.4693x+157.13)+5510. We were able to use this information to help us determine a profit function, P(x) = -.7359x2+248.879x-4667.6. . We found that the price that maximizes profit be 169.09 after taking the derivative of our profit function and dividing 248.879 /1.4718. After the second derivative test on our profit function, we found the profit was a maximum at a rate of 169.09.