What must a firm do to maximize its profit

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What is profit? There is accounting profit discussed in the textbook:

profit = total revenues - explicit costs

Let me relate profit to the factors of production. The three factors of production according to the textbook are land, labor, and capital. Let me add a fourth factor found in many economics textbooks: a return to the entrepreneur! (Entrepreneurs provide two services to society: organize resources and assume risk.)

So how does a firm or entrepreneur maximize its profits? The answer is simple: provide society what it wants. (Note: this may be different from what society needs.)

Given this perspective, profit is something inherently good, something to be maximized, not feared.

Let's refine our understanding of this concept. Normal profit is that return necessary to attract and maintain entrepreneurial participation in some economic activity.

What must a firm do to maximize its profit? Who must the firm please? How?

Reference no: EM132527258

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