What is a profit maximizer

Profit maximization

Profit maximization refers to the entrepreneur's striving for the highest possible profit for the period. This is the classic behavioral assumption.

Problem:
(1) Profit maximization can take place for the short or for the long period.

Long-term profit maximization is usually more socially acceptable than short-term, because the well-being of the individual merges with the well-being of the community in the long run.

(2) Since the term profit can be interpreted in different ways, different expressions of profit maximization are also possible.

(3) In the practical case, in addition to profit maximization, further goals can occur, which, however, often only represent intermediate goals on the way to profit maximization.

(4) In public, company spokesmen usually deny the goal of maximizing profits. This means that they consider the announcement of this goal to be damaging to their image. It does not mean that they reject the goal of maximizing profits.

Example:
In the practical case, one pursues an abundance of short-term and long-term goals, intermediate goals and higher-ranking goals.

Possible goals of this kind are:
? maximum profit in the current year,
? maximum profit in the long term,
? maximum return on equity,
? adequate growth in sales, turnover and profit,
? Securing the company as a source of income,
? Securing jobs,
? Preservation of independence,
? Continuation of a tradition,
? Exercise of economic power,
? Self-actualization,
? political and social influence,
? Supply of customers at reasonable prices.

Note:
The determination of the profit-maximizing amount includes the calculation of the breakeven point and break-even point.

In polypol, the maximum profit is achieved if one produces at the limit of capacity, in monopoly, if one realizes the Cournot point.

See also: profit concept; Target system; Level of aspiration, budget.

Profit maximization is an expression of the commercial principle. It is the goal of corporate management. The condition for profit maximization is that the marginal revenues must be equal to the marginal costs. A relative profit maximization in relation to the equity capital employed is usually sought.

The pursuit of a (long-term) maximum profit can be described as the e »classic selection criterion of» «secondary economics (object of knowledge). However, the assertion that the entrepreneur maximizes his profit needs to be analyzed critically. The goal of maximizing profit pursued in the context of perfect competition is unrealistic. Since there is risky and uncertain information in business reality, an "objective" maximum cannot be achieved. It can be assumed that the decision made will not be the most favorable in all circumstances. In this respect, at most a "subjective" maximum would be conceivable. But here too, legal, factual and other normative restrictions must be observed, which restrict the scope for action and prevent an "absolute" maximum. The goal of maximizing profit is therefore only useful if secondary conditions are observed and incomplete information is invoiced.

Due to the uncertainty, the entrepreneur generally tries to make the profit, the difference between revenue and costs, as large as possible, i.e. to maximize it. Mathematically this means that the entrepreneur tries to maximize the profit function G = f (x) = E (x) - K (x). Formally, this requires the differentiation from G to x: dG / dx is called marginal profit; it represents the additional profit that results from an infinitely small (infinitesimal) change in the amount of product produced and sold in the same amount. The profit maximum is reached when the marginal profit becomes zero. Hence: In graphic terms, this means that the slope of the revenue curve and that of the cost curve coincide in this case. In order for there to actually be a profit maximum, the 2nd derivative of the profit function must be less than zero, i.e. H. negative. The behavior is now decisive for the shape of the marginal revenue curve. In the case of polypolistic behavior, the entrepreneur has the idea that the price is a date for him, i. H. he has no influence on the price level on the market with his own actions. In this case, the marginal revenue is equal to the market price p, i.e. the profit maximization condition p = dK / dx applies. In this situation, the provider concerned is a volume adjustor. This is different with oligopolistic or monopolistic behavior. Due to the high level of market transparency, the players think in the category of so-called market demand. In this case, the revenue and thus the marginal revenue are a function of the quantity sold, i.e. the following applies: p = f (x) and thus E = px = f (x) x. The following then applies to the marginal revenue: The marginal revenue is thus made up of two components: the change in revenue due to the additional unit sold and the revenue decline that occurs in the original quantity due to the lowering of the price as a result of the increase in sales by one unit.

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