Constrained sales maximization under a linear technology

Abstract

This paper employs the activity analysis framework of linear programming to solve the decision problem of maximizing sales revenue in the presence of a minimum acceptable profit constraint. One of the advantages of using this model relative to the standard neoclassical approach is that, in addition to determining the firm's optimal product mix, we can also explore the ramifications of constrained revenue maximization on the imputed valuation of the firm's resources. The primal and dual solution values for the constrained revenue maximization problems are then compared with those derived from a linear profit maximization model. A computational technique is offered which demonstrates how constrained revenue maximization is carried out in actual practice.