operation management

| December 3, 2015

A family-run inn is considering the use of overbooking, because the frequency of no-shows has left many rooms vacant during the past summer season. An empty room represents an opportunity cost of $69, which is the average room rate. Accommodating an overbooked guest is expensive. The inn must however, because the nearby resort rooms average $119 and the inn must pay the difference. The number of no-shows is an approximated normal distribution with a mean of 1 and a standard deviation of 1. How many rooms the inn should overbook per night?

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