You own a motel with a hundred rooms. Fixed daily cost is $1000 (includes mortgage, staff salaries, maintenance). Variable cost per room is $10 per room per day (includes extra utility cost, room cleanup, etc).

1. Draw an influence diagram leading up to your profit.

2. If you charge $50 per room, what is the breakeven point? (That is, how many rooms must be occupied for you to breakeven?)

• Define the random variable X.
• Express Total Revenue, Fixed cost, Variable cost, Total cost, and Profit in terms of X.
• Calculate Breakeven point.
• Draw two graphs - one of Revenue and Total Cost against the number of rooms, the other of profit against the number of rooms.

3. You have the option of subcontracting to improve room quality and the surroundings, but that would increase fixed costs to $1800, with no change to variable costs. You will, however, be able to charge $70 per room per day. At what point will you be indifferent between your current mode of operation and the new option?

4. If the demand for rooms depends on the price as follows:

Demand = 200 - 3*price,
what price would you charge for a room?