The objective of this simulation is to illustrate how the output and price decisions of a firm in an imperfect market would differ under different objectives. This involves the comparison of profit maximisation with sales maximisation.

There are various maximising objectives of the firm in an imperfect market. There are repercussions for all stakeholders (firms, shareholders, consumers and so on) depending on which objective the firm adopts as this affects its pricing and output behaviour. There are also effects on the revenue, costs and profit levels.

We use models in an attempt to explain or predict outcomes.

A model simplifies the relationship between various economic factors. This simplification of the complex interactions between individuals, groups and institutions relies on the ceteris paribus assumption. In other words, other things being equal or unchanged.

You can download an Excel version of the original spreadsheet (Excel 97).

The simulation allows the individual to set the price elasticity of demand, the fixed costs, the variable costs and the desired profit level. The model output includes the quantity, price, total revenue, total costs and profit under sales and profit maximisation.

The model settings for the inputs are;

• Price elasticity of demand: 0.0 to 3.0
• Fixed costs (£): 50 to 200
• Variable Costs (£): 5 to 50
• Desired Profit Level (£): 50 to 290

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