Page 327 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Microeconomic Theory

Notes then Shepherd’s decision gets unrecognized. For example, when sales maximization expends more
in advertisement, then its production profit will be more than profit maximization firm. This is so
because the kinked profit of demand curve of sales maximization firm is on right side of the profit
maximization firm’s kink.
3. Hawkins has shown that generally a sales maximization firm will produce more and expend
more in advertisement than a profit maximization firm, is not real. According to Hawkins, a sales
maximization firm can select more, less or equal production and more, less and equal advertising
budget. This depends upon the responsiveness of demand rather than pricing. This conclusion is
for production of a product or a group of product.
4. For multiple products, Baumol defends that the result of revenue and profit maximization are same.
But Williamson has shown that the result of sales maximization differs from profit maximization.
5. Another defect of Baumol’s model is that it ignores the dependencies of pricing of oligopolistic
firms.
6. According to Koutsoyiannis, this model of Baumol is not capable to rectify market conditions, where
price is in non-elastic demand range for long time.
7. This model also ignores not only the real competition but also the expected competition from
oligopolistic firms.
8. Again, according to Koutsoyiannis, model does not show that how an industry, in which all firms
are sales maximized, will get equilibrium. Baumol has not made relation between firm and industry.
Despite these deawbacks, it can be said that sales maximization is the main purpose of modern
economical firms.

19.3 Summary

· According to Baumol, the sale maximization firm will use the difference between the highest level
and the lowest level of profit for increasing its revenue. He says this difference as ‘rejected fund of
profit’. “So every time the firm increases the production for increasing its total revenue, then the
firm should need to use the rejected fund of profit. This rejected fund of profit should distribute in
between various inputs, markets, inwards etc. that the monetary profit will be high. This relation
indicates that in sales maximization firm, the unprofitable inward and outwards should prevent,
whatever total expenditure and total revenue range is.”

19.4 Keywords

· Steady State: Developed State
· Non-Collusive: Without Collusive
· Profit Constraint: Gag in Profit

19.5 Review Questions

1. `What do you mean by Growth maximization theory of Marris?
2. Write comments on Baumol’s Sales Maximization Model.
3. Explain the model with Fixed Cost.
4. Explain the implications of Baumol’s model.

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