Profit Maximization
Critique of the Maximizing Behaviour of Consumers and Producers
AO3·HL
Syllabus requirement
Traditional business objective focused on maximizing the difference between total revenue and total cost.
Assessment objectives
AO3 Synthesis and Evaluation
Higher LevelThis topic is assessed at HL.
Summary
This topic explains profit maximization and alternative objectives firms may pursue. It shows that profit is maximized where marginal cost (MC) equals marginal revenue (MR), gives definitions of MC and MR, and describes other objectives such as corporate social responsibility (CSR), market share, satisficing and growth. The material matters because understanding why firms choose different objectives affects predictions about output, price, and firm behaviour.