How to Calculate Maximum Profit

[robert36]

Hi
In business, profit maximization formulas are used to determine the best price and production output needed for the greatest amount of profit return. There are two methods to calculate maximum profit: the total revenue-total cost method and the marginal revenue-marginal cost method.

The marginal revenue-marginal cost method is more of an academic methodology, because it is based on the belief that business markets are perfectly competitive. For an accurate business determination of profit, the total revenue-total cost method is a more effective way to figure the maximum profit per sale.


Thanks

[albert10]

In business, profit maximization formulas are used to determine the best price and production output needed for the greatest amount of profit return. There are two methods to calculate maximum profit: the total revenue-total cost method and the marginal revenue-marginal cost method.

The marginal revenue-marginal cost method is more of an academic methodology, because it is based on the belief that business markets are perfectly competitive. For an accurate business determination of profit, the total revenue-total cost method is a more effective way to figure the maximum profit per sale.
#Determine the total cost (TC) of doing business. The costs incurred by a business are classified into two categories: fixed costs (FC) and variable costs (VC). Fixed costs are incurred even if the business is not generating revenue. These costs include rent, advertising and salaries
#Determine the cost of revenue. A business's revenue is determined by a company's total sales. Revenue includes the payments for all products and services sold by a business. The complete sum of all business sales is called total revenue (TR).
#Determine the maximum profitability of the business. Use the total revenue-total cost method to determine how much margin (M) a firm will earn in comparison to its cost of production. The formula to calculate profit is TR - TC = Profit (P). When total costs exceed total revenue, then the business is operating at a loss.
#Review this practice exercise to understand how margin (M) affects profitability: A book business is selling books at $10 per unit. It has sold 500 books.