Final answer:
The criteria for effective revenue management include understanding price elasticity of demand, maximizing total revenue by adjusting price and quantity, and understanding customer behavior.
Step-by-step explanation:
The criteria for effective revenue management include understanding the concept of price elasticity of demand and maximizing total revenue by adjusting the price and quantity of goods or services sold.
- Price Elasticity of Demand: This concept refers to how responsive the demand for a product or service is to changes in price. If demand is elastic, a decrease in price will result in a larger increase in quantity sold, increasing total revenue. If demand is inelastic, a price increase will result in a smaller decrease in quantity sold, also increasing total revenue. If demand has unitary elasticity, changes in price and quantity have equal impacts on revenue.
- Maximizing Total Revenue: Effective revenue management involves finding the price and quantity combination that generates the highest total revenue. This may require adjusting prices based on the elasticity of demand for the product or service.
- Understanding Customer Behavior: Effective revenue management also involves understanding customer preferences, market trends, and competition in order to make informed pricing decisions to attract customers and maximize revenue.