Profit Maximisation

Motivation

Profit maximisation is a core concept in economics that refers to a firm’s goal of generating the highest possible profit from its operations. It is a fundamental assumption in economic models that helps explain how firms make decisions about production, pricing, and resource allocation and provides insights into how firms respond to changes in costs or demand. Furthermore, profit maximisation helps us predict how firms respond to regulations and taxes.

Economic profit of a firm is the difference between the firm’s total revenue and its total cost of production. A firm maximises profit by producing the quantity where this difference is maximised.

Objectives of this section

The objectives of this section are to discuss a firm’s profit maximisation problem under the assumptions of different market structures, cost functions and the firm’s ability to engage in price discrimination. Under these assumptions, the visualisations aim to provide the following insights:

• Firms optimal choice of output quantity and pricing decisions.
• Reaction of the firm to changes in the demand for its good.
• Reaction of the firm to changes of its cost of production.