Editing Profit maximization (section)

==Total revenue – total cost perspective==
{{unreferenced section|date=November 2022}}
[[Image:profit max total small.svg|right|thumb|250px|Profit maximization using the total revenue and total cost curves of a perfect competitor]]
To obtain the profit maximizing output quantity, we start by recognizing that profit is equal to [[total revenue]] (<math>\text{TR}</math>) minus [[total cost]] (<math>\text{TC}</math>). Given a table of costs and revenues at each quantity, we can either compute equations or plot the data directly on a graph. The profit-maximizing output is the one at which this difference reaches its maximum.

In the accompanying diagram, the linear total revenue curve represents the case in which the firm is a perfect competitor in the goods market, and thus cannot set its own selling price. The profit-maximizing output level is represented as the one at which total revenue is the height of <math>\text{C}</math> and total cost is the height of <math>\text{B}</math>; the maximal profit is measured as the length of the segment <math>\overline{\text{CB}}</math>. This output level is also the one at which the total profit curve is at its maximum.

If, contrary to what is assumed in the graph, the firm is not a perfect competitor in the output market, the price to sell the product at can be read off the [[demand curve]] at the firm's [[Optimal mechanism|optimal quantity of output]]. This optimal quantity of output is the quantity at which [[marginal revenue]] equals [[marginal cost]].