Google
Wednesday 
June 28, 2017 

AmosWEB means Economics with a Touch of Whimsy!

AmosWEBWEB*pediaGLOSS*aramaECON*worldCLASS*portalQUIZ*tasticPED GuideXtra CrediteTutorA*PLS
ACTUAL INVESTMENT: Investment expenditures that the business sector actual undertakes during a given time period, including both planned investment and any unplanned inventory changes. This is a critical component of Keynesian economics and the analysis of macroeconomic equilibrium, which occurs when actual investment is equal to planned investment. The difference between planned and actual investment is unplanned investment, which is inventory changes caused by a difference between aggregate expenditures and aggregate output. Should actual and planned investment differ, then aggregate expenditures are not equal to aggregate output, and the macroeconomy is not in equilibrium.

Visit the GLOSS*arama


PROFIT MAXIMIZATION:

The process of obtaining the highest possible level of profit through the production and sale of goods and services. The profit-maximization assumption is the guiding principle underlying production by a firm. In particular, it is assumed that firms undertake actions and make the decisions that increase profit. The profit-maximization assumption is the production counterpart to the utility-maximization assumption for consumer behavior.
Profit is the difference between the total revenue received from selling output and the total cost of producing that output. The profit-maximization assumption means that firms seek a production level that generates the greatest difference between total revenue and total cost. If a firm maximizes profit, then it is generating the highest possible reward for entrepreneurship resources.

The Profit Maximizing Choice

Consider how profit maximization might work for The Wacky Willy Company. Suppose that The Wacky Willy Company generates $100,000 of profit by producing 100,000 Stuffed Amigos. This profit is the difference between $1,000,000 of revenue and $900,000 of cost.
  • If profit falls from this $100,000 level when The Wacky Willy Company produces more (100,001) or fewer (99,999) Stuffed Amigos, then it is maximizing profit at 100,000.
Alternatively, if profit can be increased by producing more or less, then The Wacky Willy Company is NOT maximizing profit.
  • Suppose, for example, that producing 100,001 Stuffed Amigos adds an extra $11 to revenue but only $9 to cost. In this case, profit can be increased by $2, reaching $100,002, by producing one more Stuffed Amigos. As such 100,000 is NOT the profit maximizing level of production.

  • In contrast, suppose that producing 99,999 Stuffed Amigos reduces cost by $11 but only reduces revenue by only $9. In this case, profit can also be increased by $2, reaching $100,002, by producing one fewer Stuffed Amigos. As such, 100,000 is NOT the profit maximizing level of production.
While this assumption has numerous questions concerning its validity in the real world (do firms ACTUALLY try to maximize profit?), it does provide an excellent method of economic analysis.

Marginal Equality

The economic analysis of short-run production reveals that firms maximize profit by producing a quantity that equates marginal revenue with marginal cost. This equality holds regardless of the market structure (perfect competition, monopoly, monopolistic competition, or oligopoly) under study. While the implications of profit maximization for different market structures also differ, the process of maximizing profit is the essentially the same.

Other Objectives

On a day-to-day basis most firms likely pursue goals other than profit maximization. Three most noted objectives are sales maximization, personal welfare, and social welfare.
  • Sales Maximization: Many firms make decisions designed to increase or maximize production and the amount of output sold. More sales means more revenue, but not necessarily more profit.

  • Personal Welfare: Firms are occasionally motivate to increase the personal welfare of owners or employees, especially the employees who control the operation of the firm. Profit is usually sacrificed in the process.

  • Social Welfare: Some firms are also inclined to take actions that they deem will improve the overall well-being of society. These actions also tend to reduce profit.

Natural Selection

Natural selection is the notion that firms best suited to the economic environment on the ones that tend to survive. Those firms that approximate the goal of profit-maximization, whether intentionally or accidently, are the ones most likely to survive and remain in business. This provides justification for presuming that business firms seek to maximize profit, even though they might pursue other goals on a day-to-day basis. Even if firms do NOT actively, consciously pursue the profit-maximization goal, assuming they do is not necessarily unreasonable.

<= PROFIT CURVEPROGRESSIVE TAX =>


Recommended Citation:

PROFIT MAXIMIZATION, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2017. [Accessed: June 28, 2017].


Check Out These Related Terms...

     | firm objectives | natural selection | legal business organizations | ownership liability | firm | company | enterprise | plant | factory | industry |


Or For A Little Background...

     | profit | business | production | production cost | supply | entrepreneurship | microeconomics | private sector | institution | economic analysis | marginal analysis | market supply |


And For Further Study...

     | business sector | business cycle | political views | corporate profits | second estate | free enterprise | government enterprises | laissez faire | ownership and control |


Search Again?

Back to the WEB*pedia


APLS

GREEN LOGIGUIN
[What's This?]

Today, you are likely to spend a great deal of time visiting every yard sale in a 30-mile radius seeking to buy either a printer that works with your stockpile of ink cartridges or income tax software. Be on the lookout for slow moving vehicles with darkened windows.
Your Complete Scope

This isn't me! What am I?

Potato chips were invented in 1853 by a irritated chef repeatedly seeking to appease the hard to please Cornelius Vanderbilt who demanded french fried potatoes that were thinner and crisper than normal.
"I do not believe in a fate that will fall on us no matter what we do. I do believe in a fate that will fall on us if we do nothing. "

-- Ronald Reagan, 40th US president

CFTC
Commodities and Futures Trading Commission (US)
A PEDestrian's Guide
Xtra Credit
Tell us what you think about AmosWEB. Like what you see? Have suggestions for improvements? Let us know. Click the User Feedback link.

User Feedback



| AmosWEB | WEB*pedia | GLOSS*arama | ECON*world | CLASS*portal | QUIZ*tastic | PED Guide | Xtra Credit | eTutor | A*PLS |
| About Us | Terms of Use | Privacy Statement |

Thanks for visiting AmosWEB
Copyright ©2000-2017 AmosWEB*LLC
Send comments or questions to: WebMaster