A small riverfront hotel is interested in developing an overbooking policy for its rooms. The no-show data are given in Table 8.4. The cost of an empty room is $100. The overbooking penalty cost is $75.

a. Determine the total expected cost, if the hotel overbooks by 0, 1, 2, 3, 4, 5, 6, and 7 rooms. What should be the optimal number of rooms to overbook?

b. Verify the optimal policy obtained in part

(a) by using the overbooking formula, given by Equation 8.9.

 Equation 8.9:

Transcribed Image Text:

TABLE 8.4 No-Show Data for Exercise 8.9 No-shows Frequency 0 1 2 3 4 5 6 7 8 7 6 5 4 3 2 1