How Strong Is Your Firm’s Competitive Advantage?

Chapter 2

The Shareholders Want Their Profits, and They Want Them Now

Short-Run Profit Maximization for the Firm

Consumer Theory and Demand

Economists assume that the goal of a firm is to maximize profits. Although society frequently scorns firms for their pursuit of money, economists recognize that profits are a motivating factor to produce the goods that consumers want, to find ways to produce efficiently, to develop product attributes that appeal to consumers, and to price competitively. Consumers don’t have to buy from your firm. From the consumers’ point of view, the price they pay for your good represents opportunity cost: it implies all of the goods and services they must forego if they buy from you. To maximize profits, the firm must ...