ECONOMIC

ANALYSIS OF
PROFIT
MAXIMIZATION
Explain the Perception…

…that running
a business is
similar to
raising a baby.
The Ideal Formula of Profit
Maximization:

Marginal Utility
=
Marginal Cost
Conditions For Maximum Profits

•When marginal
revenues equal
marginal costs
Composition of Total Revenue

•Output produced
•Price of the
commodity
Basis of total output…

•…. Is based on the

demand of the product.
Demand of the product…

•… will be formed by the

benefits and satisfaction
derived by the consumers.
The Structure of the Market…

… influences the price. Therefore

market price is not determined by
one business alone, but by ALL
buyers and sellers of the market.
Market Power then…

… is setting the output that will make a

business enterprise maximize its profit.
Distinct influence of one business
enterprise to a market structure, makes
its price setting even more pronounced.
 FACTORS THAT
LEAD TO PROFIT
MAXIMIZATION
Market Concentration
•Refers to the number of sellers and buyers in
the market.
•The more concentrated the market, lesser
producers are there in the said industry.
•Most concentrated in this case will be a
monopolistic market.
Barriers to Entry
•Refers to inherent features of the industry and various means
devised in the market to prevent entry of potential players
and competitors that want to take advantage of the enormous
profit such industries generate.
•Consist of scale barriers (requirements for large production
plants to be feasible) and legal barriers (proprietory rights
and its legal protection extended to existing market players)
Product Differentiation

•The ability of a business firm to

create a market niche through
several means of varying its
products and services.
Limited information
•Refers to the unevenness in the distribution
of information among players in the market.
•Brings an edge in information spread that
can provide market power to existing
market players.
Talk about your group’s performance
task now…
•Make a preliminary economic
analysis of profit
maximization for your chosen
company.