Assignment task:
Davidson Realty is a firm that owns several parking structures in a large metropolitan area. One of their parking structure in the business area of downtown has the capacity of accommodating 400 cars. Cars arrive at the rate of 60 per hour and enter the parking if the parking is not full. If the parking is full, cars go to another parking structure in downtown. Data shows that the parking is full about 10 percent of the time. The time cars park in the structure varies between 30 minutes and 12 hours, with an average of 7 hours. Define "Parking Utilization" as the percentage of spaces in the parking that are occupied by cars.
a. What is parking utilization for this parking structure?
b. The firm charges $2 per hour (25 cents every 15 minutes) that a car parks in the structure. What is the average hourly revenue that the firm makes in an hour?
c. What would be the firm's revenue if it charges a fixed cost of $30 per car, regardless of how long cars park in the structure? The firm believes that this new pricing will have two major impacts: (i) it will reduce parking utilization to 85 percent, and (ii) it will increase the average time cars park in the structure from 7 to 10 hours. However, because customers are people who work in downtown, they will not park their cars for more than 24 hours. What would be the daily revenue of the firm if it adopts this new pricing strategy?