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The significance of revenue management is apparent in this time. A firm can manage its costs, so it is possible to
influence its revenues to some extent. The article points on some instruments, which can be used by management. The
goal is the use of price demand elasticity effect. A management should know this factor to decide on change of price and
then change of revenues.
Key words: cost management, revenue determinants, demand elasticity.
R = Q. p
Where: R – receipts,
Q - volume of sale,
P – price.
The influence of these factors will be analysed further in the text.
Change in revenue as a result of change in volume of sale on the condition ceteris paribus
This situation can be supposes as realistic. The management of a firm is able do decide on the quantity
supplied if the market requires it. Of course, the decision must reflect condition in the relevant market, so that
the market could absorb increased supply. The change in the volume of sale may be cause either by customers,
by increasing their demand, or by the firm, by improving its application of instruments of marketing mix such
as product, distribution, communication, processes, environment, custom services and human factor.
VADYBA / MANAGEMENT. 2006 m. Nr. 2(11) 79
Change in revenue as a result of both change in volume of sale and change in prices
This is the most frequent case. Usually the change in price causes the change in volume of sale, and so
change in revenue. Management of a firm should constantly monitor the responsiveness of environment to
change in both price and quantity demanded by customers, in other word to monitor demand for its good.
The management of the firm needs information on condition in the market and price elasticity of
demand.
The ratio determines the nature of a demand. It helps to a management of a firm in advance to estimate
with some accuracy the change in its revenue as a response to the change in price.
c c c
Q Q Q
Fig.1. Perfectly elastic demand Fig.2. Elastic demand Fig.3. Unit elastic ddemand
c c
Q Q
Conclusions
The paper deals with the issue of price elasticity of demand and points out factors determining it. The
paper highlights importance of knowing it for a management of a firm, because it significantly influences the
firm`s revenue and so its success on the market.
This article is a partial outcome of the research grant VEGA þ. 1/2567/05: Marketing activities of public
road a rail enterprises - participants of an integrated transport system in the process of formation of their
supplies.
REFERENCES
1. Cisko, Š., Birnerová, E.: Costs in road transport, the1st. edition, EDIS ŽU Žilina, 2000, 96 p.
2. Križanová, A., Birnerová, E.: Marketing mix in road transport, EDIS ŽU Žilina, 2002, 157 p. ISBN 80-7100-949-0