profit maximization

(redirected from Profit maximisation)
Profit maximizationclick for a larger image
Fig. 161 Profit maximization.

profit maximization

the objective of the firm in the traditional THEORY OF THE FIRM and the THEORY OF MARKETS. Firms seek to establish the price-output combination that yields the maximum amount of profit. The achievement of profit maximization can be depicted in two ways:
  1. firstly, where TOTAL REVENUE (TR) exceeds TOTAL COST (TC) by the greatest amount. In Fig. 161 this occurs at the output level where the slope of the two curves is identical and tangents to each curve are consequently parallel, as at Qe. At any output level below Qe, the relevant tangents would be diverging - the TR and TC curves would still be moving farther apart and profits would still be rising. At any output level beyond Qe, on the other hand, the relevant tangents would be converging and the profit surplus of TR over TC would be falling. Thus, Qe is the optimum point, for here the distance between the total revenue and total cost curves is maximized (equal to AB). The difference between the two curves shows up in the total profit curve, which becomes positive at output OQ1, reaches a maximum at output OQe (where profit CD = AB) and becomes negative beyond output OQ2 ;
  2. secondly, profit maximization can be shown to occur where MARGINAL REVENUE (MR) equals MARGINAL COST (MC) - at output OQe in the figure. At all output rates above OQe, additional units add more to cost than revenue, so total profits are reduced. At all output rates less than OQe, additional units add more to revenue than cost, thereby expanding total profits. Only where MR = MC are profits maximized. See FIRM OBJECTIVES.
References in periodicals archive ?
Although it is not the report's role to advise waqf investors on asset allocation, it observes they are generally not after profit maximisation but rather the fulfilment of certain social objectives.
Minister Scicluna stated that rather than being driven by purely commercial considerations and profit maximisation, the Malta Development Bank would be primarily committed to support socio-economic objectives in the public interest.
Mr Phillips argued that to be more trusted, companies need to create "public value" as well as shareholder value, and focus on profit optimisation rather than profit maximisation.
Alaris LCR Engine is developed with a focus on profit maximisation for every single call or SMS processed by the network, which is a primary objective for any carrier pursuing success in the modern telecom market driven by ever-growing competition and constantly decreasing rates.
These mandates were focused purely in UAE blue chips where profit maximisation was achieved by a blend of balanced asset allocation and active trading while maintaining adequate exposure to the markets.
Building societies do not have a culture of profit maximisation, nor are their senior executives highly remunerated, making them increasingly appealing to many consumers.
In the final analysis, profit maximisation, policy reforms and equity should cease to be mutually exclusive objectives.
The report adds: "A model of profit maximisation is now pursued by a very limited number of clubs and, whilst some clubs seek to break even on a consistent basis, the emerging norm for many Premier League and Championship clubs appears to require significant ongoing benefactor support.
And that is what June 5th is all about: reiterating man's role in turning over a greener page for the environment instead of simply following the rule of profit maximisation.
It was profit maximisation with no thought for the local residents.
The company's new office projects will adopt green building principles and ensure cost reduction, energy conservation, profit maximisation and a productive business setting.
The First Order Condition (FOC) for Iran's profit maximisation problem requires that the optimal price of exported gas (x) to be so as to ensure