Hearing the word “PROFITS” in Business can make any business owner felicitous, creating more enthusiasm for doing work.
And why not? Is making profits and earning money in the business is not the sole aim of any commercial activities?

According to research by one of the leading market research firms in United states, one of the top priorities of business owners in their daily commercial activities is to create profit maximization.
So, what is this profit maximization all about?
According to economics, profit maximization is the short or long procedure executed by the business to finalize the price, input and output levels that may lead to highest profit for the firm.
To better understand this profit maximization, Let’s have a glimpse over Jack business of selling t-shirts of different varieties as per the taste of the customers.
Jack perspective on profit maximization is very clear and distinct.
According to Jack, as total profit in business equals revenue minus cost
 (Total Profit = Revenue – Cost), 
he graphically plots each of the variables that is revenue and cost as functions of the level of output.
So the next thing Jack does is that he finds the level of output that maximizes this difference that is Revenue minus cost.
He also noticed that this can done with table of values instead of graph.
Secondly, Jack suggests that if little knowledge of mathematical calculus is enhanced by the business owner, one can use that to maximize profits with respect to output level.

Jack have a clear explanation on the difference between short and long run profit maximization that is in long run, the quantity of all inputs including physical capital are choice variables.
Where as in short run the amount of capital is predetermined by past investment decisions.
In Both the cases, the inputs of labour and raw materials is there for sure.
Jack also knows about the two types of costs which his business gets during the firm activities.
That two type of costs are: Fixed costs and Variable costs.

Fixed costs occurs only during the short run in business at any level of output.
Jack fixed costs includes as instruments maintenance, rent and wages of other workers.
Fixed costs cannot be increased or decreased in the short run and generally maintained.
As contrary, Variable costs differs and depends on level of output and the product generation.
Materials and inventory that are consumed during the production are the types of variable costs.
Fixed costs and Variable costs totally contributes to Total costs of the business.
After understanding these metric, will it be not a good decision to know more about profit maximization rule, formula, limitations and applications?

So, starting with profit maximization rule, if Jack choses its business to maximize the profits, the level of output must be selected such that Marginal cost (MC) is equal to Marginal Revenue (MR).
In very simple words, MC = MR. This equation is profit maximization rule.
Actually, Marginal costs (MC) is the increase in cost by production of one more unit of good.
While, Marginal Revenue (MR) is the change occurring in Total revenue due to change in rate of sales by one unit.
So, Profit for Jack business occurs at the most important gap between total revenue and total costs.
Profit = Total Revenue – Total costs
Jack often thinks about a question that why is the output chosen only at MC =MR?
He analyses and found that if MC < MR, then for each of surplus unit produced, revenue will be greater than the cost, so that production is more.
If MC > MR, then for each of surplus unit produced , the costs will be greater than revenue, so production is less.

 Jack also studied that how the profit maximization rule MC = MR can be applied.
He noticed that the rule is very versatile and it can be applied to operation hours of the business. Also, it can be applied to advertising and marketing.
Jack also pulled out the limitations of the profit maximization rule in his business.
He checked that it is not easy to know exact Marginal revenue and Marginal costs of the products which are sold last.
Another flaw is demand factors as it is very difficult to keep the effect of price change on demand.
Also, the biggest drawback is increasing prices to maximize profits in short run may bring in more businesses in the market.
This was a short guide on profit maximization and hope it adds value in your business.
Thank you.