The profit-maximizing principle refers to the concept that a firm should make decisions in factor markets (like labor or capital) in order to maximize their profits. This means they will hire or purchase factors of production up to the point where the marginal cost equals the marginal revenue product.
Related terms
Marginal Cost: The additional cost incurred by producing one more unit of output.
Marginal Revenue Product: The additional revenue earned from selling one more unit of output.
Factor Markets: Markets where firms buy or sell factors of production, such as labor or capital.