Functions of Profit


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Definition of Profit Maximization

Profit Maximization is the process by which a firm determines the Profit and Output level that returns the greatest Profit.

Reason for Aiming at Reasonable Profit:
Preventing entry of Competitors
Projecting a Favourable Public Image
Restraining the Labour Demand

Profit Maximization

Curve TR represents the Total revenue curve
Curve TC represents the Total cost curve
X-axis shows output and Y axis shows revenue ---(sales)
Total revenue begins from the origin and total cost curve from a point on Y-axis. The curves intersect at a point where TC=Tr. It is a situation of Break even point. Up to that point the firm incurs losses. After that the company starts earning profits. ‘OQ’ is the output. After the equilibrium point the profits start increasing and is maximum at point A.”CB’ is equal to “AQ” which is the maximum difference between TR and TC . Profit curve once again becomes negative after point A