Maximizing Profit

The last significant value that managers desire to maximize is profit. Recall that:

Profit (p) = TR - TC,

or

P * Q - (AQ + C )

Pronouncement the values for which the marginal earnings purpose equals zero optimizes profit. Taking the first derivative of the profit role requires taking the first derivatives of the proceeds and total cost functions in the same way, such that:

Mp = MR - MC,

or

MR = MC

This last equation is one of the beginning regulations and neatest applications of microeconomics for real-world managers.  It states that income is maximized when a company produces a level of production such that the incremental proceeds earned on producing the next unit is equivalent to the incremental cost incurred of producing the next unit. Since producing one unit more would product in the company incurring an incremental cost greater than the incremental revenue advantage from advertising that unit, the company should limit manufacture to the number of units that makes its unimportant profit equation equivalent to zero.