Revenue Maximisation Definition Economics

Therefore profit maximisation occurs at the biggest gap between total revenue and total costs.

Revenue maximisation definition economics. A business might also aim to maximise sales revenue rather than profits because it wishes to deter the profitable entry of new firms rivals into an industry. A firm that can sell its goods in the market earns revenue based on the number of units it sells multiplied by each unit s selling price. Revenue maximization is the maximization of sales of a business using measures such as advertisement sales promotion demos and test samples campaign references etc to increase revenue and capturing higher market share in an industry. This would occur at the point where the extra revenue from selling the last marginal unit i e.

Sales can increase up to the point of profit maximization where the marginal cost equals marginal revenue. The marginal revenue mr equals zero. Profit total revenue tr total costs tc. An assumption in classical economics is that firms seek to maximise profits.

Revenue maximization for the firm occurs at the point where the firm gets the maximum. Revenue maximization problems in economics study how to arrive at this revenue maximization point. Revenue maximisationrevenue maximisation is a theoretical objective of a firm which attempts to sell at a price which achieves the greatest sales revenue. By sales maximisation baumol means maximisation of total revenue.

If marginal revenue is positive an extra unit sold. What is revenue maximization. Maximising sales revenue is an alternative to profit maximisation and occurs when the marginal revenue mr from selling an extra unit is zero. It does not imply the sale of large quantities of output but refers to the increase in money sales in rupee dollar etc.

If a firm decides to aim to maximise sales revenue rather than profits one consequence can be a reduction in the price of the firm s shares since operating profit is likely to be lower. But sales maximisation is regarded as the short run and long run goal of the management. A firm can maximise profits if it produces at an output where marginal revenue mr marginal cost mc. Technically revenue is maximized at a point where mr marginal revenue equals 0.

Baumol cites evidence to suggest that short run revenue maximisation may be consistent with long run profit maximisation.