Cleveland Hotel has been offered a contract by a convention planner to reserve a block of 30 rooms for 365 nights at a reduced rate of $60 per night. Cleveland Hotel's usual room rate is $120 per night. When a local sports team is in the playoffs, the rooms can sell for $150 per night.
a. Compute the opportunity cost of accepting the contract on a usual night when 15 of the rooms would normally be occupied.
b. Compute the opportunity cost of accepting the contract in a playoff night when all of the rooms would normally be occupied, assuming all the rooms would have been occupied.
c. Using the usual room rate of $120, what percentage of rooms would have to be rented to make Cleveland Hotel indifferent about accepting the offer?

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The Answer of Cleveland Hotel has been offered a contract by a convention planner to reserve a block of 30 rooms for 365 nights at a reduced rate of $60 per night. Cleveland Hotel's usual room rate is $120 per night. When a local sports team is in the playoffs, the rooms can sell for $150 per night.
a. Compute the opportunity cost of accepting the contract on a usual night when 15 of the rooms would normally be occupied.
b. Compute the opportunity cost of accepting the contract in a playoff night when all of the rooms would normally be occupied, assuming all the rooms would have been occupied.
c. Using the usual room rate of $120, what percentage of rooms would have to be rented to make Cleveland Hotel indifferent about accepting the offer?

Cleveland Hotel Has Been Offered a Contract by a Convention