8.2 Profit Maximization

“Too caustic?” To hell with the cost. If it’s a good picture, we’ll make it.

—Samuel Goldwyn

Economists usually assume that all firms—not just competitive firms—want to maximize their profits. One reason is that many businesspeople say that their objective is to maximize profits. A second reason is that a firm—especially a competitive firm—that does not maximize profit is likely to lose money and be driven out of business.

In this section, we examine how any type of firm—not just a competitive firm—maximizes its profit. We then examine how a competitive firm in particular maximizes profit.

Profit

A firm’s profit, π,[&|pi|,&] is the difference between its revenues, R, and its cost, C:

π=RC.

If profit is negative, π<

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