The diagram shows a proposed location for a new HTL hotel. The local council is redeveloping the area around a railway station. HTL expects business travell...
Question 1 Report
The diagram shows a proposed location for a new HTL hotel. The local council is redeveloping the area around a railway station. HTL expects business travellers to use the station, but the site is also near an established budget hotel. A plot next to the station costs $900 000, while a plot two streets away costs $650 000. The hotel business must decide whether the extra cost will lead to enough new bookings and profit. Research has found that many guests stay for only one night.
(a) Define the term competition. [2]
(b) Calculate the difference in land cost between Plot A and Plot B. [3]
(c) Discuss whether HTL should select Plot A for its new hotel. [7]
Answer Details
(a) Competition occurs when other businesses try to sell similar products or services to the same customers. [2]
(b) The difference in land cost is:
\[\$900\,000-\$650\,000=\$250\,000\]
Plot A costs $250,000 more than Plot B. [3]
(c) Plot A is next to the railway station, making it convenient for business travellers and one-night guests. This could increase occupancy and sales. Its high visibility could also reduce the advertising needed to attract customers. However, it costs $250,000 more, tying up more cash and increasing the future profit needed to justify the investment. The nearby budget hotel may compete strongly on price. Plot B is cheaper but less convenient for station users. HTL should select Plot A only if the expected extra occupancy exceeds the additional finance and operating costs. [7]
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