Profit maximization

Profit maximization is a firm’s choice of output, inputs, or prices that produces the largest difference between its revenue and costs.

Marginal revenue: The additional revenue earned from selling one more unit of output. A firm compares the revenue from another unit with its additional cost.
Economic profit: Revenue minus explicit costs and the opportunity costs of resources used by a firm. This is the profit measure used in economic choice, including implicit costs.
Profit-maximizing price: The price a firm selects to maximize profit given demand and costs. A firm with pricing discretion chooses price through its effect on sales and margins.
Revenue maximization: The choice of output or price that yields the greatest total sales revenue. It can favor greater output than profit maximization because costs are not directly subtracted.
Zero economic profit: A state in which revenue covers explicit costs and the opportunity costs of all resources. Free entry can drive long-run competitive firms toward this benchmark without eliminating accounting profit.
Marginal cost: The additional cost of producing one more unit of output. Profit-maximizing output often lies where this equals marginal revenue.
Opportunity cost: The value of the best alternative forgone when a choice is made. A firm's costs include the returns its resources could earn elsewhere.
Labor demand: The quantity of labor firms are willing to hire at different wage rates. Hiring expands while workers' marginal contribution to revenue exceeds their wage.
Sales maximization: A firm's pursuit of the largest sales volume, often subject to a minimum profit constraint. It prioritizes sales volume rather than the highest possible profit.
Free entry: The ability of firms to enter a market without substantial legal or economic barriers. Expected profits attract entrants, which can erode incumbents' gains.

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