Profit Maximization
Definition
Profit maximization refers to the process of determining the level of output that will generate the highest possible profit for a firm, taking into account both costs and revenues.
Analogy
Think of profit maximization as trying to find the perfect balance between selling enough products to make money, but not so many that you end up losing money. It's like finding the sweet spot on a seesaw where you can maximize your earnings.
Related terms
Marginal Revenue: Marginal revenue is the additional revenue generated from selling one more unit of a product. It helps firms determine how much they should produce in order to maximize their profits.
Perfect Competition: Perfect competition is a market structure where there are many buyers and sellers, homogeneous products, perfect information, and no barriers to entry or exit. In this type of market, firms are price takers and have no control over prices.
Total Cost: Total cost refers to the sum of all costs incurred by a firm in producing a certain quantity of output. It includes both fixed costs (costs that do not change with output) and variable costs (costs that vary with output).
"Profit Maximization" appears in:
Additional resources (3)
Practice Questions (1)
- What is the relationship between MRP and MRC for profit maximization?
Resources
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