profit maximization


Also found in: Acronyms, Wikipedia.
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 ?
Thus, even on profit maximization grounds, a company might want
However, IOCs' remuneration is predetermined to the production profile for the whole lifetime of the service contract, disregarding the dynamic profit maximization policy, which will still cause profit losses and make the contract framework economically inefficient if one of the variables considerably decline.
It is necessary to decide which server must process the request so that the waiting time is reduced, so that more number of user requests may be satisfied in the same stipulated time and results in profit maximization.
* Institutional investors have sufficient influence over corporate managers to induce them to refrain from own-firm profit maximization in favor of greater industry profits.
Asian Institute of Competitiveness CEO Hassan Haider gave a detailed presentation on the tools of cost reduction and profit maximization and provided key tips to the local industry for improving its competitiveness and productivity.
Islamabad -- The Islamabad Chamber of Commerce and Industry in collaboration with Skill Development Council, Islamabad organized a workshop on 'Cost Reduction and Profit Maximization' for the education of local industry how to improve its competitiveness and enhance productivity.
He said since he assumed duty at the CPC, he made it a point of duty to challenge businesses to place consumers' satisfaction and wellbeing far above profit maximization.
It was, therefore, the height of oversimplification and exaggerated assumption when free enterprise economists attributed to the business man the exclusive concern with profit maximization in their theoretical models trying to explain the workings of the law of supply and demand in a free market economy.
Vast in security management and intelligence gathering with several written articles, most of which centers on micro financing, profit maximization, loan and recovery strategy formulation, Onyemah is a resource person with practical experience in freelance writing, training and consulting with passion for micro financing.
Profit maximization should not be placed above the legitimate interest of the Austrian population.
Moderate traits of the Dark Triad and profit maximization is the title of the article of Marcia Figueredo D'Souza, Gerlando Augusto Sampaio Franco de Lima, Daniel N.