Model:

Simplify: The historic hotel in Bayport, Minnesota (which suspiciously does not include any
bays) was recently acquired by a Mr. Frank Graham. In the scenario of the model, he asks a
class of college algebra students at the U of M to determine the best way to maximize his profit
by changing how much a room costs to rent per 1 night. The hotel has 80 rooms, all of which
are occupied when the daily rate is $60 per room. Each room also has a maintenance cost of $4
per night. Mr. Graham also has found that for every dollar increase in the room price, one of the
rooms becomes vacant. Mr. Graham, a man who is fully aware of the volatile state of capitalist
markets, has also asked the students for a mathematical tool that can be used to keep his
profits up even if the costs of running his hotel change in the future. For this model, we assume
that the rate of occupation in the rooms stated above will never change. We assume that the
costs of maintenance for the room per night will represent the only cost of operating the hotel.
We assume that there is no difference in the costs if multiple people rent out a room. We
assume that there is no change in costs if one person rents out a room for multiple nights in a
row. We assume that a room that is not in use does not need maintenance. We assume that all
guests will not increase the costs of their room maintenance- e.g. they will not break or misuse
their rooms or amenities. Therefore, we assume that all numbers given in the equation will
remain constant.

Represent: To represent our model, we’ll be using a table, graphs, and formulas. The table was
far and away the most useful representation, as through the magic of Google Sheets, we were
able to get most of our data through our initial table. This also allowed us to solve one of the
issues immediately, in that if the hotel owner ever wanted to use a tool to figure out how much
his rates should change should costs change in the future, and he can just give him the table as
a template.

Solve:
Here is our table. It’s very large, which makes it pretty much impossible to show in the
document, but you can access it via the link.

To demonstrate some figures more visually, here are some comparison graphs:

This shows the dollars charged per night in blue, and the number of vacant rooms in red,
demonstrating how as the price is raised, more rooms become vacant.
This shows the cost of maintenance in yellow, and the number of filled rooms in green. This
graph demonstrates how the price for maintenance quickly decreased as less people fill the
rooms.

This shows the Gross Profit in Orange, and the Net Profit in purple. It demonstrates how the
differences in profits decrease as less people stay at the hotel, and also how Net Profit peaks
after gross profit does.

In terms of creating formulas that doesn’t require the use of a huge table, they would look
something like this: D*F=G. F*4=M. G-M=N. D is the dollars charged for staying in a room. F is
the number of full rooms. G is the Gross Profit. M is the cost of maintenance. N is the Net Profit.

Interpret: One of the strengths of our model is that it accounts for every possibility, so that if
Graham decided that, for instance, he wanted to adjust the pricing to find an equilibrium
between cost and convenience, no additional charting would be required. A weakness is that it
is heavily reliant on an unchanging correspondence between the number of dollars added to the
room cost and the number of empty rooms in the hotel, which is very unlikely to occur in reality;
what would be more likely is that more than 1 room is empty.

Extend:
Simplify: One of the weaknesses of our model was that it begins by assuming for the changing
price that all rooms of the rooms would be full, while this is not impossible, this is not realistic.
Because of this, in my extend I will use a more realistic number of occupied rooms which will
factor into the maintenance costs, profit, and number of vacant rooms. Thus, some of the
assumptions made will change:
1. The hotel will have no unforeseen expenses that would cut into the profit.
2. Costs of the maintenance for the room per night be the only hotel maintenance cost.
3. There will be no difference in the costs of a room if multiple people are staying in it.
4. The cost per night of a room won't change if someone stays for multiple nights.
5. Vacant rooms don’t need maintenance
6. Guests won't do anything to increase their bill and maintenance costs ex: breaking
anything, smoking
7. There are no designated smoking rooms at different prices, all rooms operate under the
same rules at the same price.
8. Numbers and equations used to get those numbers will remain constant.
9. The rate of occupation will only be affected by the cost of the rooms, no other factors.

Represent: I will use a table and formulas to show how hotel cost affects occupancy and have a
tool for the hotel owner. As well as written explanation to describe the table, graphs, an
formulas.

Solve: To replace the original number that started the number of full rooms at the top of our
spreadsheet with a more reasonable number, I searched for the average number of occupied
hotel rooms in the US. I found on creditdonkey.com that 62.2% of rooms are occupied on any
given night.

There are 80 rooms in the historic hotel, by multiplying 80 by 0.622 (for 62.2%) which equals
49.76. This means that only 49.76 rooms in the hotel are likely to be filled at any given time, so I
put 49.76 at the top of the B column. This change affected the rest of the table to correspond to
the change because of the equations we used in the original table, these equations did not need
to be changed in my extend.
I cut my table shorter than our original table because it didn’t need to be that long before it
reached 0 full rooms. The first column, A, has the amount of money is charged per room per
night going up by 1 on each descending row starting at 60 in row 1. The second column, B, is
for the number of full rooms, the number goes down by 1 every descending row starting at
49.76 (in this case I’m counting decimals as people in the process of checking in or out of a
room). The third column, C, is the maintenance costs of the occupied rooms in the hotel, by
multiplying the number of occupied rooms in any given row by 4 for the $4 cost of service and
maintenance per day, you get the maintenance costs of the hotel should that many rooms be
occupied. The fourth column, D, is the gross profit of the hotel, multiplying any given row’s
column A and B together gives you the gross profit. The net profit in column E is found by
subtracting the gross profit of any given row by its corresponding maintenance costs, and you
get that row’s net profit. The number of vacant rooms in column F is found by subtracting the
number of occupied rooms in that column from 80 for the total number of rooms.

To find the best possible price for the hotel owner to put the rooms at, we must look at the net
profit column. In terms of net profits the row he would initially make the most money in is row 52,
charging $109 per night and having a net profit of $21,692.32. However this price would not be
a good choice for the hotel owner because realistically the likelihood of having 0.76 (or 1 at
most) occupied rooms in the hotel at once on a consistent basis to keep the hotel running is
incredibly small, thus making the hotel cost $109 per night would be a very poor choice. If the
hotel owner did do this I would suggest having just the one room open to use and using the rest
of the hotel for touring since it has a historic status that may make it a point of interest for
tourists, this tourism could generate another income for the hotel.

Instead, I recommend that the hotel owner keeps the price per night at $60 in row 2, because it
keeps enough rooms occupied (49.76) to have the second highest net profit of $2,786.56 right
behind row 51. This decision would also likely keep the hotel in business much longer because
row 2 has the highest room occupancy rate. Either row 51 or 2 could work for the hotel owner
but row 2 is more reliable and does not introduce a second variable of tourists and tours around
the hotel.

Interpret: The biggest strength of my extend is that although the original model is a good
representation of room cost to vacancies and profit, my extend shows a more realistic amount of
occupied rooms that can give the hotel owner a better idea of his profits. The table is also easy
to use so the owner can see how any potential changes could affect profits. However my extend
does have weaknesses, this model and my extend do not take into account other factors that
would affect hotel occupancy ex: location, season, hotel atmosphere, amenities, cleanliness.
Neither account for unexpected expenses to the hotel and employee wages that would affect
profits. The model and my extend don't take into account certain protections the hotel might be
under with it being historic or how the hotels status as a historic building would affect the
financials to the owner and occupancy rate.