Profit maximisation

Profit maximisation is assumed to be the dominant goal of a typical firm. This means selling a quantity of a good or service, or fixing a price, where TR is the greatest above TC.

This is consistent with producing up to the point where the marginal revenue (MR) from selling one extra unit exactly equals the marginal cost (MC) of producing that unit. It can be seen in the following graph. Profit is maximised at Q, with the area of super-normal profits being PABC.

Profit maximisation

More on profits.