1.A hotel at Philadelphia has 118 king/queen rooms that it offers to both leisure and business travelers. Revenue from low and high fares are = 159, = 225 It is April 1, and we are interested in the hotels bookings on May 29th. The hotel knows that there will be plenty of travelers willing to pay the low fare, so selling all 118 rooms by May 29th is not a problem. The objective to maximize revenue implicitly assumes that the variable cost of an occupied room is inconsequential. Assume a Normal distribution with mean 27.3 and standard deviation of 15 represents the number of high-fare travelers on May 29th. Assume on May 29th night the no-show distribution is Normal with mean 8.5 and standard deviation 5. Assume the total cost to the hotel for each of guests denied a room due to overbooking is $350. Calculate the protection level for the high-fare and the booking limit for the low-fare customers.

2. In the the above hotel example, suppose the cost of an occupied room is $45 per night. That cost includes the labor associated with preparing and cleaning a room, the additional utilities, and the wear and tear on the furniture and fixtures. What is the optimal protection level for the full fare customers?