Revenue Maximisation | A-Level Economics Model Paragraph

Revenue maximisation occurs at the quantity where marginal revenue equals zero. It is an important objective for some businesses because their goal might be to increase their market share. As firms increase market share, especially in oligopoly markets, they can improve customer loyalty. Later, they might be able to act as a monopoly and maximise profits from this. Additionally, as firms maximise revenue, they can increase output more than they would if they were profit-maximising. As output rises, long-run average costs fall, a phenomenon known as economies of scale. For example, at higher output levels, firms can benefit from bulk purchasing.

However, most firms may favour profit maximisation, which occurs when marginal cost equals marginal revenue. The main benefit of profit maximisation is that firms earn supernormal profits. In the long run, supernormal profits can be more useful because they allow firms to reinvest, which can be a natural way for firms to grow and increase their market share compared with revenue maximisation.

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