Explain critically the alternative theory of profit maximisation
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In the neoclassical theory of the firm, the main objective of a business firm is profit maximisation. The firm maximises its profits when it satisfies the two rules:
(i) MC = MR and,
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(ii) MC curve cuts the MR curve from below.
Maximum profits refer to pure profits which are a surplus above the average cost of production. It is the amount left with the entrepreneur after he has made payments to all factors of production, including his wages of management. In other words, it is a residual income over and above his normal profits.
(i) MC = MR and,
ADVERTISEMENTS:
(ii) MC curve cuts the MR curve from below.
Maximum profits refer to pure profits which are a surplus above the average cost of production. It is the amount left with the entrepreneur after he has made payments to all factors of production, including his wages of management. In other words, it is a residual income over and above his normal profits.
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