Different objectives can lead to different output choices.
Profit maximisation seeks the greatest total profit over the relevant horizon. Revenue maximisation seeks the greatest sales revenue and can produce a different choice, often subject to a minimum-profit constraint. Profit satisficing aims for a satisfactory profit target rather than the largest possible profit. Market share dominance concerns the firm's sales relative to the defined market, measured consistently by volume or value. Some growth or social actions can support future profit rather than replace that objective. Identify the stated priority, horizon and constraints instead of guessing an objective from one action.
- Profit maximisation
- Profit maximisation chooses the largest total revenue minus total cost among available options, over the period being considered.
- Revenue maximisation
- Revenue maximisation chooses the largest sales receipts. A minimum-profit constraint is an extra rule: reject any option earning less than the stated profit target first.
- Profit satisficing
- Profit satisficing means accepting a satisfactory target rather than seeking the greatest possible profit. An owner might accept enough profit in return for a lighter workload.
Apply the distinction
Market share
Market share is the firm's sales divided by total sales in the relevant market, usually expressed as a percentage. Use either units sold or sales value for both figures. A firm can sell more yet lose share if the market grows faster.
Long-run intention
A price cut or social initiative may sacrifice current profit to raise future profit. The action alone does not identify an alternative objective.
Smooth revenue maximum
When given a smooth TR relationship, revenue rises where MR is positive and falls where MR is negative. A relevant MR = 0 crossing from positive to negative therefore identifies an interior revenue maximum; check capacity boundaries. For the separate model AR = 40 - 2Q and MR = 40 - 4Q, this is Q = 10, price $20 and TR $200. With TC = 12 + 4Q + Q squared, profit there is $48, below the $96 at Q = 6.
| Objective | Chosen output | Reason |
|---|---|---|
| Maximum profit | 3 | Profit 18 is largest |
| Maximum feasible revenue, no profit floor | 5 | Revenue 110 is largest among listed choices |
| Maximum revenue subject to profit at least 10 | 4 | Revenue 96; profit 12 meets floor |
Worked example: Revenue with a $10 profit target
Use the workshop's five-batch limit. Profits at zero to five batches are [-18,2,14,18,12,-4], and revenues [0,30,56,78,96,110]. The manager considers maximising revenue subject to at least $10 weekly profit.
- Unconstrained by a profit floor, five gives the largest revenue among the available options, $110, but makes a $4 loss. This is not a claim about quantities beyond five.
- A $10 minimum-profit constraint permits two, three and four batches. Four has the greatest revenue among those options: $96 with $12 profit.
- Pure profit maximisation chooses three, earning $18. A profit-satisficing owner may accept another option meeting their target for reasons such as time or workload.
- Market share requires information about total market sales. Higher firm sales do not guarantee a larger share if the market grows faster.
Watch out for this
The highest-revenue option must also maximise profit.
Revenue ignores cost. Apply the stated objective and any minimum-profit or capacity constraint.
Check your understanding
Under the workshop's $10 minimum-profit constraint, which output maximises feasible revenue?
- Three, because it has the highest profit.
- Five, because its revenue is $110.
- Four, with revenue $96 and profit $12.