BUSINESS INTELLIGENCE
The Economics of Profit Maximization During a Recession
Understanding the role of external factors on pricing and output.
Maximizing profit during a recession
Maximizing profit is the core goal for commercial businesses. Through careful balancing of profit with costs and revenue, a firm is able to achieve maximal short-run earnings for output of a product or service.
However, when external factors affect pricing, such as a looming recession, profitability from the firm’s output may diminish — or even turn negative.
In these cases, it becomes important for a firm to determine when it should continue normal operations, slow down production, or even shut down and exit the industry altogether.
Marginal revenue and marginal cost
Marginal revenue (MR) is the revenue that a firm receives from sales of a product or service. This is the core earnings that leads to a firm’s profitability.
Marginal cost (MC) is the cost to produce the product or service. This includes any costs involved in continued production for the product per unit of output.
