Sales maximisation. Baumolā€™s theory of sales maximisation 2019-01-24

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Sales Maximisation Baumol 1959 Free Essays

sales maximisation

Assignment Set 2 Question 1 What are the principles of management? Thus the managers are interested not only in their own emoluments but also in the size of their staff and expenditure on them. The slope of the transformation curve is called the marginal rate of product transĀ­formation and is equal to the ratio of the marginal costs of the two commodities The product transformation curve is concave to the origin showing the increasing difficulty increasing cost of reducing product y and reallocating the resources to the increase of product x. 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. However, output may be lower and price higher in the new equilibrium, depending on the shift and the elasticity of the demand curve following advertising, as well as on the cost conditions of the firm. Managers prefer steady level of profits, not maximum profits which are difficult to maintain.

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

sales maximisation

A price cut may increase sales in general. Unity of command There should be single chain of command in the organisational structure which means one person should report to only one boss Unity of direction Managers must be methodical and must approach with a single plan following the single universal approach to achieve goals Equity Management actions must be a combination of fairness, justice and empathy layered with the idea of productivity-based incentives. Sales maximization and profit maximization are distinct business objectives. Hence Baumol implies that the increase in revenue will be attained from an increase in the volume X. Follow up with customers after the sale.


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Sales Maximization Vs. Profit Maximization

sales maximisation

Baumol cites evidence to suggest that short-run revenue maximisation may be consistent with long-run profit maximisation. Thus the total production cost function is a straight positively-sloping line through the origin. In fact depending upon the type or stage of demand the marketing task would differ. This evidence supports baumols presumption that sales maximisation is better related than profit, to executive rewards and corporate performance. Companies often have this objective to build their customer base, to steal customers from competitors, to drive quick cash flow and to sell excess inventory. Consultative selling, Customer service, Mail 1265 Words 4 Pages do they market them. Sales maximization is an activity that concentrates on revenue transactions and can be accomplished by employing various sales strategies and programs.

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Baumol's Theory of Sales Revenue Maximisation

sales maximisation

Unlike a price reduction, increased advertising always increases sales revenue. Look for rises in sales that occurred after a new strategy was implemented. Sales maximization model is an alternative model for. Nevertheless Williamson points out those factors like taxes, changes in business conditions etc. Prospects of loans are bright for such firms as have large total sales. If the firm were a profit maximiser, it would produce the level of output X nm.

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Sales maximisation

sales maximisation

Hawkins has shown that if the firm is engaged in any form of non-price competition such as good packaging, free service, advertising, etc. Maxims of La Rochefoucauld 1613-1680 also see page 76 of our text 1. Most of the times even if others consider you selfish and you may also concede it reluctantly, you are actually not truly and correctly selfish! If the minimum profit constraint is Ī  1, the equilibrium of the sales maximiser is defined by point a on the isorevenue curve R 6. The former wants maximum return in their investment and hence their maximisation of profits. Our tutors can break down a complex Output Maximisation problem into its sub parts and explain to you in detail how each step is performed. For example, managers usually have sales related bonuses. A price reduction policy may increase its sales only when the demand is elastic and if the demand is inelastic; such a policy would have adverse effects on sales.

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Profit Maximisation

sales maximisation

They are elaborated further below. Start by looking at the benefits that your product offers and thinking about whose needs are best met by those benefits. This statement implies clearly that advertising will not change the price. 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. In the case of multiproduct, Baumol has argued that revenue and profit maximisation yield the same results. Although the study tells us little about sales maximisation, Shipley found that it was ranked fourth among principle pricing objectives, and nearly half the firms included sales revenue as at least part of their set of objectives. Over its lifetime the firm will have a stream of revenues R, R 1 + g , R 1 + g 2, ā€¦ R 1 + g n The present value of this stream of future revenues is estimated by the usual discount formula where i is the subjective rate of discount of the firm.

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

sales maximisation

When attempting to maximize sales, however, a business must cut prices to very near costs. From the above assumptions the following inferences can be drawn. The first is static model and the second one is the dynamic model. Neither the infant nor the mother are mean or philathropic respectively. In the short run a firm is able to make only slight or minor adjustments in the production process as well as in business conditions. However, with advertising taking place there may be conditions under which these predictions will be different.

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Sales maximisation

sales maximisation

Since operations of the firm are in the hands of managers, and managers' performance is measured in terms of achieving sales targets, therefore it follows that management is more interested in maximising sales, with a constraint of minimum profit. Profit-maximization implies earning highest possible amount of profits during a given period of time. These changes will be greater than those of a profit maximiser. By sales he meant total revenue earned by the sale of goods. The model does not show how equilibrium in an industry, in which all firms are sales maximisers, will be attained.

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Baumol's Sales or Revenue Maximisation (With Diagram)

sales maximisation

Your marketing materials need to do more than just tell your ideal customer that you can fix their problems. Together, they cited information from. In other words, as the economists know so well, depending on whether demand is or is not elastic, price cutting is an uncertain means for increasing dollar sales. Baumol cites evidence to suggest that short-run revenue maximisation may be consistent with long-run profit maximisation. Similarly, if the minimum acceptable profit is n 2, the sales-maximising solution is b on curve R 4. The firm is assumed to be able to pursue an independent price policy, that is, to set its price so as to achieve its goal of sales maximisation given the profit constraint without being conĀ­cerned about the reactions of competitors. Truth does not so much good in the world as its appearances do evil.

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