Baumol's static and dynamic model

Answer 1

. Boumal's model highlights that the primary objective of a firm is to maximize its sales rather than profit maximization. It states that the goal of a firm is maximization of sales revenue subject to a minimum profit constraint. Prof. Boumal has developed two models: 1st is Static Model and 2nd is Dynamic model The Static Model: This model is based on the following assumptions, 1. The model is applicable to a particular time period and the model does not operate at different periods of time. 2. The firm aims at maximizing its sales revenue subject to a minimum profit constraint. 3. The demand curve of the firm slope downwards from left to right. 4. The average cost curve of the firm is U-shaped one. Dynamic Model: This model explains how changes in advertisement expenditure, a major determinant of demand, would affect the sales revenue of a firm under severe competitions. Few assumptions of this model are, 1. Higher advertisement expenditure would certainly increase sales of a firm. 2. Market price remains constant. 3. Demand and cost curves of the firm are conventional in nature.