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A family-run inn is considering the use of overbooking because the frequency of no-shows listed below has left many rooms vacant during the past summer
A family-run inn is considering the use of overbooking because the frequency of no-shows listed below has left many rooms vacant during the past summer season. An empty room represents an opportunity cost of $110, which is the average room rate. Accommodating an overbooked guest is expensive, however, because the nearby resort rooms average $180 and the inn must pay the difference as its cost to "bump" a customer. What is the optimal level of overbooking? Please identify Cu (under-stocking cost) and Co (over-stocking cost) to calculate the critical ratio, i.e., the optimal service level
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