(a) Outline the relationship between the profit-maximising output and the revenue-maximising output with reference to Baumol’s Model of managerial decision making (1959). Under what circumstances may a firm wish to pursue the objective of maximising revenue rather than maximising profit? Is this a realistic model of managerial decision making?
(b) A sales revenue maximising firm will decrease price and increase production in response to an increase in fixed costs or lump sum taxes. While a profit maximising firm will increase price and reduce output by more than a sales maximising firm when there is an increase in variable cost.’ Do you agree with this statement? Discuss.
3000 words max.
Part b requires a pro and con discussion. Right in theory, wrong in practice. Examples needed when wrong. Explaining theory, drawing diagrams, considering different conditions such as perfect competition.
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