A few years ago, Hotel Klingerhoffer, a large hotel chain, announced that because occupancy rates had declined during the previous quarter, it was raising room rates to cover the cost of its increase in vacant rooms. Although not referring to accounting or economics, several business journalists during the week following the announcement questioned the basis for the rate increases. One stated that “Hotel Klingerhoffer increases rates of vacant rooms.”

Required

a. Did the journalist mean that vacant rooms would be more expensive? Explain.

b. Do you think Hotel Klingerhoffer’s action to raise room rates was based on economics, accounting, or both?