On a Simultaneous Decision Model for Marketing, Production and Finance: A Rejoinder

The primary focus of Welam's comment [Welam, Ulf Peter. 1977. On a simultaneous decision model for marketing, production and finance. Management Sci.23 (9, May) 1005–1009.] is the criticism of the specific form of the demand function used to Damon and Schramm [Damon, William W., Richard Schramm. 1972. A simultaneous decision model for production, marketing and finance. Management Sci.19 (October) 161–172, (13)]. His criterion for evaluating the model appears to be the degree to which individual equations faithfully represent the modelled phenomena for all possible values of the endogenous variables. This test of model validity would reject the quadratic approximations of production costs in the Holt, Modigliani, Muth and Simon study [Holt, Charles C. et al. 1960. Planning Production, Inventories, and Work Force. Prentice-Hall, Inc., Englewood Cliffs.], and would reject the use of quadratic utility functions, since at some level of income or wealth marginal utility becomes negative.