Definition:
An alternative theory to that which argues that firms seek to maximize profits. W.J. Baumol (Economic Theory and Operations Analysis, 1965) is generally recognized as having first suggested that firms often seek to maximize the money value of their sales, i.e. their sales revenue, subject to a constraint that their profits do not fall short of some minimum level which is just on the borderline of acceptability. In other Words, so long as profits are at a satisfactory level, management will devote the bulk of its energy and efforts to the expansion of sales. Such a goal may be explained perhaps by the businessman's desire to maintain his competitive position, which is partly dependent on the sheer size of his enterprise, or it may be a matter of the interested management, since management's salaries may be related more closely to the size of the firm's operation than to its profits, or it may simply be a matter of prestige. It is also Baumol's view that short-run revenue maximization may be consistent with long-run profit maximization, and revenue maximization can be regarded as a long-run goal in many oligopolistic firms. Baumol also reasons that high sales attract customers to the popular product, cause banks to be receptive to the firm's financial needs, encourage distributors, and make it easier to retain and attract good employees.
Copyright © 2026 eLLeNow.com All Rights Reserved.