1
$\begingroup$

In Hal Varian's Book "Microeconomic analysis" on page 35 he gives the following description of a profit maximising firm.

"...If the firm is maximising profits, then the observed net output choice at price pt must have a level of profit at least as great as the profit at any other net output the firm could have chosen. We don't know all the other choices that are feasible in this situation, but we do know some of them-namely, the other choices $y_s$ for $s=1,...,T$ that we have observed. Hence, a necessary condition for profit maximisation is that $p_ty_t≥p_ty_s$ for all $t$ and $s=1,...,T$.

"We will refer to this condition as the Weak Axiom of Profit Maximisation (WAPM)."

I dont understand this can I get a more detailed drawn out explanation as if I'm five, or a reference to where I can further information on this?

$\endgroup$
1
$\begingroup$

You don't need more detail, you need less:

Suppose a firm could make production choice A, or production choice B. Suppose the firm chooses A, and is maximizing profits. Then, this implies that the firm is making as much or more profits as it would make if it had chosen B.

$\endgroup$
  • $\begingroup$ Wow now I get it. Thank you so much. Would upvote but I dont have 15 karma yet. $\endgroup$ – Christopher Fritzke Oct 4 '19 at 1:01
  • $\begingroup$ Well, when you do... ;) $\endgroup$ – heh Oct 4 '19 at 23:35
  • $\begingroup$ Also, please mark it as having answered your question, if it did! $\endgroup$ – heh Oct 4 '19 at 23:36

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.