Profit Maximization It is almost every company’s goal to maximize their profits in order to gain the best return they can on their investments. Maximizing profits helps to facilitate the longevity and survivability of a company because it provides the company the ability to expand their business, borrow money, attract investors, and hire more employees. Understanding when or if the company is profitable can be somewhat overwhelming at first, but by applying the principals of total revenue, total cost, marginal revenue, and marginal costs the process of determining profitability is simplified greatly.
In order to understand how the principles of economics affect the profitability of a company it is important to understand what each principal is. The first principle, total revenue can be summarized as, the price of a unit sold multiplied by the number of units sold. For example if the price per unit sold is $10 and the firm sells 10 units, the total revenue is $100. The next principle, total cost, is defined by McConnell, Brue, and Flynn (2012) as, “the sum of fixed costs and variable costs” (p. 35). Fixed costs are items that do not change when output is changed and can include items such as real estate, utilities, loan payments, and government fees. Variable costs on the other hand are the opposite of fixed cost and include the costs associated with an increase in output (McConnell, Brue, Flynn, 2012, p. 148). Examples of variable costs could include items such as materials, production supplies, and direct labor. Using total revenue to total cost profitability can be calculated by subtracting the total costs from the total revenue. In the case of Company A the total revenue to total cost would look like table 1 below.

Table 1
Company A Total Revenue to Total Cost
Units TR TC Total Revenue to Total Cost
0 $0.00 $10.00 -$10.00
1 $150.00 $30.00