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%.

Question

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

Answer 1

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

Answer 2

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

Answer 3

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