A New Hampshire resort offers year-round activities: in winter, skiing and other cold-weather activities; and in summer, golf, tennis, and hiking. The resorts operating costs are essentially the same in winter and summer. Management charges higher nightly rates in the winter, when its average occupancy rate is 75 percent. Can this policy be consistent with profit maximization? Explain.

To determine if the policy of charging higher nightly rates in the winter at a New Hampshire resort is consistent with profit maximization, we need to understand how profit maximization occurs in the context of the resort.

Profit maximization for a resort depends on the concept of marginal revenue and marginal cost. Marginal revenue is the additional revenue generated from selling one more unit (in this case, a room night), while marginal cost is the additional cost incurred in producing one more unit.

In the given scenario, the resort's operating costs are essentially the same in both winter and summer. However, the resort charges higher nightly rates in the winter when its average occupancy rate is 75 percent. This suggests that there is likely higher demand for rooms during the winter season compared to the summer.

To explain how to determine profit maximization in this case, follow these steps:

Step 1: Determine the marginal revenue for each unit sold in both winter and summer seasons. Marginal revenue is calculated as the change in total revenue divided by the change in the quantity of units sold. In this case, the quantity refers to the number of room nights.

Step 2: Compare the marginal revenue to the marginal cost for each season. If the marginal revenue in the winter is higher than the marginal cost, it means that charging higher nightly rates in the winter season would result in higher profit. Conversely, if the marginal revenue in the summer is higher than the marginal cost, it may indicate that charging lower nightly rates in the summer could yield higher profit.

Step 3: Consider the average occupancy rate in the winter and summer. If the marginal revenue is significantly higher in the winter season (due to higher demand), it may justify charging higher nightly rates despite having a lower occupancy rate. However, if the occupancy rate is low in the winter, it might be worth considering lowering the nightly rates to increase occupancy and overall revenue.

Step 4: Take into account any other factors that may affect profit maximization, such as market conditions, competition, and customer preferences. These factors can influence the demand elasticity and pricing decisions.

Considering the steps outlined above, it is possible that the policy of charging higher nightly rates in the winter can be consistent with profit maximization. However, a more detailed analysis of the resort's revenue and cost structure, as well as market dynamics, would be necessary to make a definitive conclusion.