Revenue Curves Assignment Help

Assignment Help: >> Baumols Static Model - Revenue Curves

Revenue Curves:

The TR curve has the usual shape, initially increasing but at a decreasing rate, reaching a maximum( where ∂R/∂X<0 ). The total profit curve, as usual is obtained by subtracting TC from TR. 

Given the profit constraint (405_Cost Curves1.png), equilibrium is attained at the OAs level of advertising outlay. Clearly,  OAs OAπ > (which is advertising outlay corresponding to maximum profit.).  One drawback of this model is that Baumol does not examine the interrelationship between advertising,  price, cost of production and level of output. Further, the assumptions made are not consistent. For instance, he assumes that the total production costs are independent of advertising. This implies the total output X remains constant after advertising is undertaken. Now, an increase in sales revenue R, given X, can be attained only if price is raised. But price was assumed to be constant, which indicates the presence of inconsistency.   

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