BAUMOL SALES REVENUE MAXIMIZATION MODEL PDF

This model is developed by Prof. Boumol, an American economist. It states that the goal of the firm is maximization of sales revenue subject to a minimum profit constraint. The minimum profit constraint is determined by the expectations of the share holders. This is because no company can displease the share holders. In my dealings with them I have been struck with the importance the oligopolistic enterprises attach to the value of their sales.

Author:Daitilar Gum
Country:Latvia
Language:English (Spanish)
Genre:History
Published (Last):28 December 2019
Pages:241
PDF File Size:8.24 Mb
ePub File Size:10.30 Mb
ISBN:761-6-66487-326-9
Downloads:92919
Price:Free* [*Free Regsitration Required]
Uploader:Dairg



This model is developed by Prof. Boumol, an American economist. It states that the goal of the firm is maximization of sales revenue subject to a minimum profit constraint. The minimum profit constraint is determined by the expectations of the share holders. This is because no company can displease the share holders. In my dealings with them I have been struck with the importance the oligopolistic enterprises attach to the value of their sales.

Hence, the managers are more interested in maximizing sales rather than profit. The basic philosophy is that when sales are maximized automatically profits of the company would also go up.

Hence, attention is diverted to increase the sales of the company in recent years in the context of highly competitive markets. Maximizing sales revenue is an alternative to profit maximization and occurs when the marginal revenue, MR, from selling an extra unit is zero. The notion that business firms especially those operating in the real world are primarily motivated by the desire to achieve the greatest possible level of sales, rather than profit maximization.

On a day-to-day basis, most real world firms probably do try to maximize sales rather than profit. For firms operating in relatively competitive markets, facing relative fixed prices, and relatively constant average cost, then increasing sales is bound to increase profits, too.

Moreover, according to the notion of natural selection, even firms that seek to maximize sales, those that also maximize profit will remain in business. The primary responsibility of a marketing or sales manager is to achieve sales targets over a given time period.

In addition to achieving sales targets, a sales manager is expected to maximize sales to provide growth and increase profits. Sales maximization is an activity that concentrates on revenue transactions and can be accomplished by employing various sales strategies and programs.

The thought that maximizing sales will help maximize profits is not always true. An increase in sales is associated with an increase in cost of goods sold and other expenses.

Sales maximization programs can be implemented for many reasons and at various times, but they are not done continuously. The start of a business, during lean seasons and at times when there is excess inventory are examples of those times. Sales managers may refrain from maximizing sales without the consent of general managers to avoid a possible shortage of business resources such as inventory and manpower. The banks and other financial institutions keep a close eye on the sales of firms and are more willing to finance firms with large and growing sales.

Personnel problems are handled more satisfactorily when sales are growing. The employees at all levels can be given higher earnings and better terms of work in general. Large sales, growing over time, give prestige to the managers, while large profits go into the pockets of shareholders.

Managers, prefer a steady performance with satisfactory profits to spectacular profit maximization projects. If they realize maximum high profits in one period, they might find themselves in trouble in other periods when profits are less than maximum. Arguments Against Sales Maximization Model In defence of this model, the following arguments are given. It increases the competitive ability of the firm and enhances its influence in the market. The financial and other lending institutions always keep a watch on the sales revenues of a firm as it is an indication of financial health of a firm.

Boumol has developed two models. The first is static model and the second one is the dynamic model. The demand curve of the firm slope downwards from left to right.

The average cost curve of the firm is unshaped one. The Dynamic Model of Sales Maximization In the real world many changes takes place which affects business decisions of a firm. In order to include such changes, Boumol has developed another dynamic model. This model explains how changes in advertisement expenditure, a major determinant of demand, would affect the sales revenue of a firm under severe competitions. Market price remains constant.

Demand and cost curves of the firm are conventional in nature. This leads to a shift in the demand curve to the right. This is because total and output revenue is maximized at the price output level is positive where marginal revenue is zero, while at the profit maximization level of output marginal revenue is positive, given that marginal costs are positive.

Under sales maximization with a minimum profit constraint, output will be greater and price lower than under profit maximization objective. If this is true that oligopolists seek to maximize sales or total revenue, then the greater output and lower price will have a favorable effect on the welfare of the people.

As explained above, another implication of sales maximization objective is more advertising expenditure will be declined under it. Further, under sales maximization objective of oligopolists, price is likely to remain sticky and the firms are more likely to indulge in non price competition. This is what actually happens in oligopolistic market situations in the real world. In a short run situation where output is limited, revenue would often increase, if prices were raised, but in the long run it might pay to keep price low in order to compete more effectively for a large share of the market.

This price policy to be followed in the short run would then depend on the expected repercussions of short run decisions on long run revenue. Related Articles:.

BASALAMAT RAVI PDF

Baumol’s Sales or Revenue Maximisation Theory: Assumptions, Explanation and Criticisms

Baumol in his book Business Behaviour, Value and Growth has presented a managerial theory of the firm based on sales maximisation. He discusses two models of sales maximisation: a static model and a dynamic model. We shall analyse only his static model of sales maximisation with its variants of single product model without advertisement. Assumptions: The model is based on the following assumptions: 1.

LEY 26856 PDF

Sales Revenue Maximisation

Prof Baumol in his article on the theory of Oligopoly presented a managerial theory of the firm based on the sales maximisation. There is a single period time horizon of the firm. The firm aims at maximising its total sales revenue in the long run subject to a profit constraint. The firm is oligopolistic whose cost cures are U-shaped and the demand curve is downward sloping. Its total cost and revenue curves are also of the conventional type. According to Baumol, with the separation of ownership and control in modem corporations, managers seek prestige and higher salaries by trying to expand company sales even at the expense of profits.

MANIPULACIONES VISCERALES VASCULARES PDF

Baumol’s Sales or Revenue Maximisation (With Diagram)

.

Related Articles