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Module 11A
                    THE REVENUE MAXIMIZATION MODEL (BAUMOL)

OBJECTIVE:

This module illustrates the operation ...
12   200.00   2400   3840   -1440   -60.0%
Revenue Maximization

          5000



          4000



          3000



          2000
DOLLARS




          1000



 ...
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Mod11 av3

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Transcript of "Mod11 av3"

  1. 1. Module 11A THE REVENUE MAXIMIZATION MODEL (BAUMOL) OBJECTIVE: This module illustrates the operation of the Baumol revenue maximization model. This model states that a firm will maximize its revenue subject to a minimum profit constraint. In this module, revenue, cost and profit are calculated, permitting the analyst to determine which results are the most desirable. The model allows for a straight-line downward-sloping demand curve, fixed costs, and a quadratic variable cost function. Thus, the total revenue curve increases at a decreasing rate (and eventually decreases). The total cost curve will rise at an increasing rate. INPUTS (will appear in blue): 1) Quantity: enter up to thirteen quantities in cells A37-A49, in ascending order. 2) The demand curve is of the form p = a - bQ: a) Enter coefficient a, the intercept, in cell H35. b) Enter coefficient b, the slope, in cell H37. 3) The cost is of the form TC = a + bQ + cQ^2: a) Enter coefficient a (representing fixed cost) in cell H41. b) Enter coefficient b (straight line component) in cell H43. c) Enter coefficient c (quadratic component) in cell H45. (The caret ^ signifies an exponent: x^2 is x squared.) BAUMOL MODEL Sample data have been entered as an example. A graph can be viewed by pressing GRAPH (located at the bottom of the screen). Coefficients TOTAL TOTAL TOTAL PROFIT Demand: QUAN. PRICE REV. COST PROFIT MARGIN a 500 0 500.00 0 600 -600 b 25 1 475.00 475 760 -285 -60.0% 2 450.00 900 940 -40 -4.4% 3 425.00 1275 1140 135 10.6% Cost: 4 400.00 1600 1360 240 15.0% a 600 5 375.00 1875 1600 275 14.7% 6 350.00 2100 1860 240 11.4% b 150 7 325.00 2275 2140 135 5.9% 8 300.00 2400 2440 -40 -1.7% c 10 9 275.00 2475 2760 -285 -11.5% 10 250.00 2500 3100 -600 -24.0% 11 225.00 2475 3460 -985 -39.8%
  2. 2. 12 200.00 2400 3840 -1440 -60.0%
  3. 3. Revenue Maximization 5000 4000 3000 2000 DOLLARS 1000 0 -1000 -2000 0 2 4 6 8 10 12 14 QUANTITY Column C Column D Column E

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