When occupancy increases, which is likely to decrease?

When occupancy increases, which is likely to decrease?

• A. occupancy percentage
• B. total revenue per night
• C. number of rooms sold
• D. average daily rate per room

Answer: (D)

When more rooms are occupied, managers often lower prices to attract additional guests and fill the remaining inventory. This pricing strategy reduces the average rate charged for each occupied room, even though more rooms are being sold. So, as occupancy rises, the average daily rate per room tends to fall. The number of rooms sold and the occupancy percentage typically rise, and total revenue per night can increase or stay the same depending on how much the rate is discounted. The key consequence here is that the average daily rate per room is the metric most likely to decrease with higher occupancy.

When more rooms are occupied, managers often lower prices to attract additional guests and fill the remaining inventory. This pricing strategy reduces the average rate charged for each occupied room, even though more rooms are being sold. So, as occupancy rises, the average daily rate per room tends to fall. The number of rooms sold and the occupancy percentage typically rise, and total revenue per night can increase or stay the same depending on how much the rate is discounted. The key consequence here is that the average daily rate per room is the metric most likely to decrease with higher occupancy.