Planning Advertising Expenditures by Dynamic Programming Methods

Abstract

Much of the importance of the new dynamic programming methods has remained unnoticed because of the apparent complexity of the underlying mathematics. This is indeed unfortunate because the essence of the programming methods for certain classes of problems is not new to practicing economists. Dynamic programming methods can provide an efficient computational algorithm for problem types frequently encountered in consumer demand and production theory. In this paper the following approach will be utilized. First, an illustration concerned with the allocation of an advertising budget among competing media will be presented that will enable the reader to study the relationship between dynamic programming and simple combinatorial analysis. Second, an attempt will be made to show the relationship between demand and production theory on the one hand and programming on the other. Third, an advertising budget allocation problem much like the simpler one discussed in the first section will be cast in terms of the dynamic programming computational procedure and solved. Finally, a very brief mathematical solution will be preferred. Management Technology, ISSN 0542-4917, was published as a separate journal from 1960 to 1964. In 1965 it was merged into Management Science.