A CA resort offers year-round activities and the resort's operating costs are essentially the same in winter and summer. Mgmt charges higher nightly rates in the winter, when its average occupancy rate is 75%, than in the summer, when its occupancy rate is 85%.

My question is, this can also be consistent with profit maximization, correct?

That pricing structure doesn't make sense to me. Usually hotels charge more when rooms are scarcer.

Ms. Sue, the resort's operating costs are the same in the winter and the summer. But their rooms are filled more in the summer than in the winter, so to maximize their profits, the resort increases price to increase sales and profits, but the marginal costs remains the same.

My question is, I was just getting confirmation that this is also consistent with the profit-maximization rule? Correct?

Thanks

But would management have a higher occupancy rate in the winter if it lowered the consumer's cost per room?

http://en.wikibooks.org/wiki/Microeconomics/Perfect_Competition#Profit_Maximization_Rule

Yes, this can be consistent with profit maximization. In order to determine if the resort is maximizing profit, we need to consider the relationship between occupancy rate, average nightly rates, and the operating costs.

Typically, higher occupancy rates lead to higher revenue since more rooms are being occupied, thereby generating more income. However, higher occupancy rates also mean that more resources, such as staff and utilities, are being utilized, resulting in higher operating costs.

In this scenario, the resort charges higher nightly rates in the winter when its occupancy rate is 75%. By doing so, they are aiming to maximize revenue per occupied room while keeping their operating costs relatively stable throughout the year.

It is possible that the higher nightly rates in winter compensate for the lower occupancy rate, resulting in higher overall revenue and potentially higher profits. The resort might have analyzed its costs and market conditions to determine that this pricing strategy could yield the best outcome.

Ultimately, profit maximization depends on finding the right balance between pricing and occupancy rates to cover the operating costs while generating the highest possible revenue.