economics
BAUMOL’S MODEL OF SALES REVENUE MAXIMISATION Maximising sales revenue is an alternative to profit maximisation and occurs when the marginal revenue, MR, from selling an extra unit is zero.
Revenue maximisation graph (ref: The condition for revenue maximisation is, therefore, to produce up to the point where MR = 0
SALES MAXIMISATION
Sales maximisation is another possible goal and occurs when the firm sells as much as possible without making a loss. Not-for-profit organisations may choose to operate at this level of output, as may profit making firms faced with certain situations, or employing certain strategies. An example of this would be predatory pricing where, so long as costs are covered, a firm may reduce price to drive rivals out of the market.
Sales maximisation means achieving the highest possible sales volume, without making a loss. To the right of Q, the firm will make a loss, and to the left of Q sales are not maximised where AC=AR. [1] Managers are more interested in firm size than profits. Size leads to greater monetary and non-monetary rewards. For example, managers usually have sales related bonuses. As well, the size of the firm they are managing gives them a greater sense of worth; rather than just making their boss richer.
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Firm is profitable between Q1 and Q2. At Q3 is the profit is at max point
Managers take production right up to the point where TC=TR; if they can [2] Oligopolies can benefit most from going past the profit maximising output because it gives them a market share advantage over their competition. The economic climate can affect managers' ability to deploy this tactic. If a recession is on the cards then shareholders will be anxious and keeping them and profits high will be a priority to which managers must abide to keep their position.
The Downsides:
1.Shareholders are worse off
2. Baumol can possibly explain the downfall of
Revenue maximisation graph (ref: The condition for revenue maximisation is, therefore, to produce up to the point where MR = 0
SALES MAXIMISATION
Sales maximisation is another possible goal and occurs when the firm sells as much as possible without making a loss. Not-for-profit organisations may choose to operate at this level of output, as may profit making firms faced with certain situations, or employing certain strategies. An example of this would be predatory pricing where, so long as costs are covered, a firm may reduce price to drive rivals out of the market.
Sales maximisation means achieving the highest possible sales volume, without making a loss. To the right of Q, the firm will make a loss, and to the left of Q sales are not maximised where AC=AR. [1] Managers are more interested in firm size than profits. Size leads to greater monetary and non-monetary rewards. For example, managers usually have sales related bonuses. As well, the size of the firm they are managing gives them a greater sense of worth; rather than just making their boss richer.
________________________________________
Firm is profitable between Q1 and Q2. At Q3 is the profit is at max point
Managers take production right up to the point where TC=TR; if they can [2] Oligopolies can benefit most from going past the profit maximising output because it gives them a market share advantage over their competition. The economic climate can affect managers' ability to deploy this tactic. If a recession is on the cards then shareholders will be anxious and keeping them and profits high will be a priority to which managers must abide to keep their position.
The Downsides:
1.Shareholders are worse off
2. Baumol can possibly explain the downfall of