sales-revenue maximization

Fig. 173 Sales revenue maximization.

sales-revenue maximization

a company objective in the THEORY OF THE FIRM that is used as an alternative to the traditional assumption of PROFIT MAXIMIZATION. The firm is assumed to seek to maximize sales revenue subject to a minimum profit constraint (determined by the need to pay dividends to shareholders and to finance expansion). In Fig. 173, sales revenue is maximized at output level OQ_s. If the firm's minimum profit constraint is at level A, then the sales-revenue maximizing output level of OQ_s will provide sufficient profits. If the firm's required profit level is B, however, the sales-revenue maximizing output OQ_s is clearly inadequate. The firm's output would then be lowered to level OQ_s *, which is just compatible with the profit constraint. Clearly, the higher the minimum profit figure required, the more important the constraint becomes and the profit-maximizing (OQ_m) and sales revenue-maximizing output levels will be closer together. See also MANAGERIAL THEORIES OF THE FIRM, FIRM OBJECTIVES, DIVORCE OF OWNERSHIP FROM CONTROL, PRINCIPAL-AGENT THEORY.