Under what circumstances may a firm wish to pursue the objective of maximising revenue rather than maximising profit?

(a) Outline the relationship between the profit-maximising output and the revenue-maximising output with reference to Baumol’s Model of managerial decision making (1959). Under what circumstances may a firm wish to pursue the objective of maximising revenue rather than maximising profit? Is this a realistic model of managerial decision making?

(b) A sales revenue maximising firm will decrease price and increase production in response to an increase in fixed costs or lump sum taxes. While a profit maximising firm will increase price and reduce output by more than a sales maximising firm when there is an increase in variable cost.’ Do you agree with this statement? Discuss.