The Behavior That Maximizes Profit

I define profit maximization in behavioral terms as the act of producing the right kind and the right amount of the goods and services the consumer wants at the lowest possible cost.

Businesses know they are producing the right kind of goods and services if consumers are willing to buy them. Let me emphasize again that businesses that produce goods and services illegally have no place in this discussion because they are performing criminal acts.

Businesses also know when they are producing the right amount of goods and services. It is that level of output where marginal revenue is equal to marginal cost, as previously discussed. To produce less would mean the company would not bring units to the marketplace that, when sold, would result in revenues greater than the cost of producing them, and this kind of behavior is inefficient. To produce more would mean the company would bring units to the marketplace that, when sold, would result in revenues less than the cost of producing them, and this kind of behavior is also inefficient.

Producing at the lowest possible cost is probably the most recognizable tenet of business behavior. Lower costs give the company a competitive advantage in the marketplace. Higher costs put it at a competitive disadvantage and reduce its ability to survive.