Anyone has answer for this please?
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 whether the policy of charging higher nightly rates in the winter is consistent with profit maximization, we need to consider the relationship between price, demand, and profit.
Firstly, let's understand the concept of demand elasticity. In general, demand is considered elastic when a change in price leads to a significant change in quantity demanded, whereas demand is considered inelastic when a change in price has a relatively small impact on quantity demanded.
In the scenario mentioned, the resort operates year-round and incurs the same operating costs in both winter and summer. However, the resort charges higher rates during the winter season when its average occupancy rate is 75 percent. This implies that during the winter season, the demand for the resort's services is higher compared to the summer season.
If the demand for the resort's services during the winter is inelastic (meaning that customers are relatively insensitive to price changes), the resort can charge higher rates without experiencing a significant decline in occupancy. In this case, profit maximization can be achieved by charging higher prices during the winter season when demand is high.
However, if the demand for the resort's services during the winter is elastic (meaning that customers are highly sensitive to price changes), charging higher rates may result in a significant decline in occupancy. In this situation, the resort may not be maximizing its profits by charging higher rates during winter, and it might consider adjusting its pricing strategy to attract a higher number of customers.
To determine the elasticity of demand during the winter season, the resort can conduct market research and collect data on customer behavior, such as price sensitivity and customer preferences. By analyzing this data, the resort can gain a better understanding of how changes in price may affect demand and make informed decisions about its pricing strategy.
In conclusion, whether the policy of charging higher nightly rates in the winter is consistent with profit maximization depends on the elasticity of demand for the resort's services during that season. Conducting market research and analyzing customer behavior can provide insights to help the resort make profitable pricing decisions.