Revenue Management Technical Academy Blog

RM Moment #5: 

Economic theory states that profit is only maximized when marginal cost is equal to marginal revenue. However, there are businesses, such as those mentioned in RM Moment #4, that, given their restrictions in their spatial and/or temporal dimensions, this objective is impossible. Because businesses with this type of characteristics tend to have high financial leverage, that is, low variable costs and high fixed costs. That said, the economic theory of profit maximization as a rule does not apply to companies with inflexible production, that is, companies that are candidates for the application of Revenue Management. This is why the economic strategy to apply is to increase the net contribution margin by maximizing revenue, while keeping variable costs as low as possible and not applying the traditional theory of profit maximization, which, and I would say curiously, it would certainly lead the company to bankruptcy.

For more visit our academy at: