Revision Video: Sales Maximisation Diagram Explanation

How is sales maximisation is achieved?

Sales maximisation is achieved when:

AC = AR or TC = TR

In other words, a business is selling as much as they can without making a loss.

At the sales maximisation output, there are normal profits only and no supernormal profits/loss

Why do businesses choose a sales maximisation objective?

They want to achieve a rapid growth of market share (subject to the constraint that they need to achieve a minimum rate of profit (normal profit) to justify staying in the market in the long run).

What does sales maximisation involve?

Sales maximisation typically involves businesses charging lower prices for their products contrasted with profit maximisation.

This can be good news for consumer welfare in the short run as the level of consumer surplus increases.

A numerical example of sales maximisation while achieving normal profits

• Average cost = average revenue at an output of 4 units per week
• At output level 5, a loss is made because average revenue is less than average cost (ie TR<TC)

Output per week	Total revenue (£millions)	Average revenue (£millions)	Total cost (£millions)	Average cost (£millions)	Marginal cost (£millions)
0	0	-	10	-	-
1	40	40	25	25	15
2	60	30	34	17	9
3	78	26	52	17.3	18
4	96	24	96	24	44
5	105	21	150	30	54