What is Profit Maximisation?

Profit maximisation is one of the fundamental assumptions of economic theory. It will be achieved when a firm reaches the stage of equilibrium.

A firm is said to have reached equilibrium when it has no need to change its level of output, either an increase or decrease, in order to maximise profit.

If a business faces tough competition sometimes the only way it can survive is to pay extra attention to revenues and costs – and to adjust them accordingly.

Profit maximisation is a good thing for a company, but can be a bad thing for consumers if the company starts to use cheaper products or decides to raise prices as a way to maximise profits.

So, when it comes to profit maximisation in business, there are two simple options open to you.

Profit maximisation is all about a company reaching a level of equilibrium output so that its profits are at a maximum level – and these profits are the difference between total revenues and total costs.

It makes complete business sense to operate at a profit maximisation level – anything less could result in a failing (and costly) business.

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