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.
What is its average occupancy rate in the summer?
This is all the information given in the problem. It does not give the average occupancy rate in the summer.
occupancy rate is 85 percent in the summer
To determine if the resort's policy is consistent with profit maximization, we need to consider the relationship between pricing, occupancy rate, and costs.
Firstly, it's important to note that profit maximization occurs when the revenue generated exceeds the costs incurred.
In this scenario, the resort charges higher nightly rates during winter, which suggests that they expect to generate more revenue during that season. However, the average occupancy rate, or the percentage of rooms occupied, is mentioned to be 75 percent in winter.
To assess if this policy aligns with profit maximization, we need to compare the revenue generated during winter with the costs incurred during both winter and summer.
If the higher nightly rates and 75 percent occupancy rate during winter result in a revenue level that exceeds the total costs (including both winter and summer), then the policy is consistent with profit maximization. This would mean that the additional revenue generated during winter compensates for the costs incurred throughout the year.
However, if the revenue generated in winter is not sufficient to cover the total costs, including the summer operating costs, then the policy may not be consistent with profit maximization. In such a case, management would need to evaluate their pricing strategy and/or consider adjusting their cost structure to result in a more profitable outcome.
To further evaluate this, you would need access to specific financial data such as the actual revenue generated, operating costs, and the difference between costs in winter and summer. By analyzing these numbers, you can determine if the resort's policy is consistent with profit maximization.