Maximization of efficiency of advertising expenditure

Abstract

The paper models the dynamics of a firm’s communication activities. The aim is to determine an advertising policy that maximizes the firm’s efficiency index, defined as the ratio of ''output'' to ''input'' weighted values. The ''output'' measures include the final level of goodwill and the cumulative sales achieved by the firm over the entire selling period. The ''input'' measures consist of the firm’s expenditures, namely marginal costs and advertising costs. We describe the structure of optimal controls and propose an algorithm for computing optimal trajectories.