Profit maximisation
Definition. Profit maximisation is the assumption that firms aim to make the largest possible difference between total revenue and total cost. A firm maximises profit by producing the level of output where marginal revenue equals marginal cost, provided marginal cost is rising at that point.
This is the traditional objective of firms in economic theory. Where marginal revenue exceeds marginal cost, expanding output raises profit, and where marginal cost exceeds marginal revenue, reducing output raises profit.
This term belongs to The Objectives of Firms in A Level Economics. Read the full chapter for the diagrams, worked examples and exam technique.
Want to use profit maximisation for marks in the exam? Learn it in class or message the team.