profit maximization

Strategy to maximize the difference between revenue and cost. In economics, it is assumed that the goal or objective of a private company is to maximize profits, this being in the best interests of the shareholders of the company. Profits are maximized when the marginal cost of production is equal to the marginal revenue from sales. If marginal costs are below marginal revenue, output could be expanded in order to gain extra profit from the extra or marginal unit of output. If, on the other hand, marginal costs are above marginal revenue, the firm is making a loss on the last or marginal unit of output produced. It would reduce its loss or increase its profit by reducing its output.