What is Profit Maximization?

In economics, profit maximization is the short run or long run process by which a firm determines the price and output level that returns the greatest profit.

Maximum profits refer to pure profits which are a surplus above the average cost of production. It is the amount left with the entrepreneur after he has made payments to all factors of production, including his wages of management. In other words, it is a residual income over and above his normal profits.

A process that companies undergo to determine the best output and price level in order to maximize its return. The company will usually adjust influential factors such as production cost, sales prices and output levels as a way of reaching its profit goal.

Profit maximization is the process of identifying the most efficient manner of obtaining the highest rate of return from its production model.

Profit maximization is the main aim of any business, it is the process that companies undergo to determine the best output and price levels in order to maximize its return. Briefly, all the decisions whether investment, financing, dividends, etc. are focused to maximize the profits to optimum level.

There are two main profit maximization methods viz:

1) Marginal cost - Marginal revenue method

2) Total cost - Total revenue method

The core objective of a Profit organisation is to maximize the profit and shareholders wealth.

In this regard targets are set and achieve accordingly.

Profit maximisiation is the short-term objectives of an organisation(ie. mission) and wealth maximisation is the long-term objectives of an organisation9ie. vision). So both are important to the organisation.

The term is Self explanatory. Deploying the financial assets to get maximum return in its life time.