A packet buffer for the protocol processor is a large memory space that holds incoming data packets for an application. Data packets for each application are stored in the form of FIFO queues in the packet buffer. Packets are dropped when the buffer is full. An efficient buffer management algorithm is required to manage the buffer space among the different FIFO queues and to avoid heavy packet loss. This thesis develops a simulation model for the packet buffer and studies the performance of conventional buffer management algorithms when applied to packet buffer. This thesis proposes a new buffer management algorithm, Dynamic Algorithm with Different Thresholds (DADT) to improve the packet loss ratio. This algorithm takes advantage of the different packet sizes for each application and proportionally allocates buffer space for each queue. The performance of the DADT algorithm is dependent upon the packet size distribution in a network traffic load. Three different network traffic loads are considered for our simulations. For the average network traffic load, the DADT algorithm shows an improvement of 6.7 % in packet loss ratio over the conventional dynamic buffer management algorithm. For the high and actual network traffic loads, the DADT algorithm shows an improvement of 5.45 % and 3.6 % in packet loss ratio respectively. Based on the simulation results, the DADT algorithm outperforms the conventional buffer management algorithms for various network traffic loads.