We have seen over the previous chapters that the primary economic goal of managers is to maximize added value. Within this context several important issues have been explored. First, the concept of economic profit was revealed. Next, the importance of knowing the customer was connected to revenue. Most recently, the connection between inputs, outputs, and costs was initiated with a discussion of the law of diminishing marginal returns.

In order to beginning examining how managers add value, we must identify some rule that guides decision making. To this end, the present chapter begins with a discussion of profit maximization or the MR=MC rule. Economists apply this rule to all types of decisions. In deciding whether or not to do something, you should always consider the additional revenue or benefit (MR) that will result from your decision and compare that to the additional costs associated with your decision. If MR is greater than MC, you should do more of whatever it is you are doing.

The next part of Chapter 6 describes the various types of environments in which business decisions are made. These environments, or markets, range from perfect competition to monopoly on the extremes to monopolistic competition and oligopoly in between. It is in these selling markets that managers attempt to create and maintain economic profit over time.

The chapter concludes with an appendix that formally develops the rules for profit maximization for both price takers and price makers. A calculus-based framework is employed.