Tobin s portfolio and baumols inventory approaches. Productivity measurement issues in services industries. The baumol model of cash management theory relies on the trade off between the liquidity provided by holding money the ability to carry out transactions and the interest foregone by holding one s assets in the form of noninterest bearing money. Contestable markets and the theory of industry structure. By introducing speculative demand for money, keynes made a significant departure from the classical theory of money demand which emphasized only the transactions demand for money. Prof baumol in his article on the theory of oligopoly presented a managerial theory of the firm based on the sales maximisation. Finally, we state some criticisms of baumol s theory. Baumols theory of sales revenue maximisation springerlink. Baumols managerial theory of sales revenue maximization. We will first present these models, examine the predictions of baumol s theory in various situations, and then discuss the empirical evidence from research directed to the verification of the sales maximisation hypothesis. Baumols sales revenue maximization model highlights that the primary objective of a firm is to maximize its sales rather than profit maximization. Baumol is the 2003 winner of the international award for entrepreneurship and small business research.
The baumol model enables companies to find out their desirable level of cash balance under certainty. He attempted to test the hypothesis implicit in baumol s theory that if profits above the minimum constraint are earned, ceteris paribus, firms pursue policies for example, cut prices, and increase advertising and investment in order to increase their sales revenue. William baumols book, the microtheory of innovative entrepreneurship is the first formal theoretical analysis of the role of innovative entrepreneurs. Contestable markets and the theory of industry structure by baumol, william j. According to baumol firm s objective is sales maximisation not profit max. Baumols sales revenue maximization model mba knowledge base. Download limit exceeded you have exceeded your daily download allowance.
Economic theory and operations analysis by baumol, william j. A more comprehensive empirical study was made by m. Baumol developed a modelthe transactions demand for cash. Implication of sales maximization theory of baumol is that price would be lower and output greater under sales maximization than under profit maximization.
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