The maximisation of revenue from New Zealand sales of butter on the United Kingdom market - a dynamic programming problem

Abstract

The objective of this paper is to consider and illustrate the potential usefulness of the method of analysis known as Dynamic Programming in one field of market analysis. The illustrative problem solved is that of maximising revenue from New Zealand sales of butter on the United Kingdom market. In this example we consider that the aim of the New Zealand butter marketing authority is to maximise revenue from butter sales in the United Kingdom over a twelve month quota period. The problem to be solved will be formulated as the selection of the monthly levels of New Zealand butter sales that maximise revenue for New Zealand from the butter quota allocated. The problem will first be solved using Dynamic Programming. The disadvantages of this method of solution will then be discussed and a simpler solution to the problem, which holds for linear demand functions, will then be given.