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A Primer On Profit Maximization, Robert Carbaugh, Tyler Prante

All Faculty Scholarship for the College of Business

Although textbooks in intermediate microeconomics and managerial economics discuss the first-order condition for profit maximization (marginal revenue equals marginal cost) for pure competition and monopoly, they tend to ignore the second-order condition (marginal cost cuts marginal revenue from below). Mathematical economics textbooks also tend to provide only tangential treatment of the necessary and sufficient conditions for profit maximization. This paper fills the void in the textbook literature by combining mathematical and graphical analysis to more fully explain the profit maximizing hypothesis under a variety of market structures and cost conditions. It is intended to be a useful primer for all …