Profit Maximization in the Short Run

If the firm’s objective is to maximize profits (Π), they must maximize the difference between total revenue (TR) and total cost (TC). Π = TR –TC. It is possible to identify the output level that will maximize profits for the firm if the MR and MC functions are known. Where MR = MC, profits will be maximized (or losses minimized).

R,C,π TC

TR

MR

MC

0 q_A q* q_B q_x