Profit = total revenue − total cost. The model assumes every firm is a rational producer: it aims for the largest possible profit.
Why firms want maximum profit
It pays the owners
Shareholders put money in to earn a return. Profit is that return.
It pays for investment
Profit kept in the firm buys new machines and shops without borrowing.
It keeps the firm alive
A firm that makes losses year after year has to close.
The points to remember
- Profit maximisation: producing the output where profit is largest.
- It is an assumption of the model, like utility maximisation for consumers.
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How does a firm find that output? It looks at the next unit: does it add more to revenue than to cost?
Our example (made-up numbers)
| Cake number | Extra revenue (MR) | Extra cost (MC) | Make it? |
|---|---|---|---|
| 20th | €8 | €4 | Yes: +€4 profit |
| 30th | €5 | €5 | Stop here: MC = MR |
| 40th | €2 | €8 | No: −€6 profit |
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The points to remember
- Make another unit while MR > MC: it adds to profit.
- Make fewer if MC > MR: the last unit loses money.
- Profit is maximised where MC = MR.
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Real firms rarely say "maximum profit" is their only aim. The guide names four other objectives.
Four alternative objectives
| Objective | What the firm aims for | Real-world example |
|---|---|---|
| Corporate social responsibility | Acting fairly towards workers, society and the environment, beyond what the law asks | Clothing firms paying suppliers a fair price |
| Market share | The biggest share of sales in its market, even at lower prices | Ride-hailing firms that ran at a loss for years to win riders |
| Satisficing | Profit that is good enough to keep the owners happy, not the most | A family business that keeps prices steady and hours short |
| Growth | Getting bigger: more shops, more countries, more products | Online retailers putting profit back into new warehouses |
Remember it as: CSR, share, satisfice, grow: four reasons a firm may stop short of maximum profit.
Each objective puts the firm at a different point on the same profit curve.
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Why firms stray from maximum profit: In big companies the owners (shareholders) are not the managers. Managers may prefer size, safety or a quiet life to maximum profit.
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Quick reminder
- Axes: costs, revenue up the side, Q along the bottom
- Curves: D = AR, MR, MC and AC
- Marks: Q1 below MC = MR, P1 straight up on AR
- Profit box between P1 and AC, as wide as Q1
- No numbers, no title
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The same rule also shows as the biggest gap between total revenue and total cost.
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Satisficing: Satisficing has no single point: any output near Q that earns enough profit will do. Draw MC = MR and explain it in words.
Paper 1 asked this in November 2024 and again in May 2026, for 15 marks. The diagram that earns credit is MC = MR.
Using real-world examples, discuss the view that profit maximization will always be the main objective of a business.
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How the 15 marks are given
| Marks | What your answer needs |
|---|---|
| 13–15 | Theory fully explained, terms right all the way through, balanced evaluation, real examples fully developed to support the argument |
| 10–12 | Theory explained, terms mostly right, evaluation mostly balanced, real examples developed |
| 7–9 | Theory partly explained, some evaluation but one-sided, examples partly developed |
| 4–6 | Theory only described, evaluation superficial, examples only named |
| 1–3 | Theory stated but not relevant, no evaluation |