The Riverview Hotel is a deluxe four-star establishment. Late on Friday, it had 20 of its 300 rooms available when the desk clerk received a call from the Pines Hotel. The Pines Hotel made a booking error and did not have room for four guests (each of whom had a “confirmed” room). The Pines wants to send its customers to the Riverview but pay the rate the guests would have been charged at the Pines ($160 per room) rather than paying the normal rate of $260 per room at the Riverview.
a. If the Riverview accepts the guests, what will be the incremental revenue?
b. Provide examples of incremental costs that the Riverview will incur if it accepts the guests.
c. In your opinion, will the incremental revenue be greater than the incremental cost?