Tariott Hotel rents rooms for $125 a night that cost approximately $50 per day to maintain. Overbooking is a common practice in the industry. Customers whose rooms have been leased to someone else are put up in a nearby hotel for $100 a night. Records show that during the past month, there were 10 days with zero no-shows, 5 days with 1 no-show, 6 days with 2 no-shows, and 9 days with 3 no-shows.
a. What is the cost of overbooking?
b. What is the cost of underbooking?
c. What is the optimum probability of no-shows for Tariott?
d. How many rooms should Tariott overbook?