The sales maximization hypothesis has been put forward by Professor 8aumol. In his view, maximization of sales rather than the maximization of profits the ultimate objective that the entrepreneur pursues. He says that sales have become an end of themselves and not merely as a means to further other objectives like operational efficiency and profits. Baumel, therefore, regards sales maximization as the most valid assumption governing the behaviour of a firm. By sales is meant the revenue earned by selling the product. Therefore, it is also called Revenue
However, Prof. Baumel concedes that while promoting sales businessmen do not ignore altogether the goal of profits. He.before, modifies his position by saying that the entrepreneur promotes sales subject to the limitation that cost incurred are covered and a usual rate of return on investment is secured. Hence, according to Prof. Baumel, the objective is the sales maximization subject to minimum profit constraint. He says “So long as profits are high enough to keep stock holders satisfied and contribute adequately to the financing of company’s growth, management will bend its efforts to the augmentation of sales revenue rather than to further increase in profits.:
A firm aims at maximum revenue or sales consistent with earning minimum profit. This model is a compromised between total sales and profits. But it is also understood that after MR = MC, increase in sales can only be at the expense of profits. This puts a limit to sales increase because minimum profits must be made. Here TR is total revenue, TC total cost and TP curve represents total profit. At the output OA, profits are maximum. But if the firm aims at only sales maximisation, output will be OC which corresponds to R2 at the top of TR giving maximum total revenue. Dut actually this firm will produce and sell 08 corresponding to R. total revenue because it gives minimum profit.