Profit satisficing is an economic theory where businesses aim to earn a satisfactory level of profit instead of the absolute maximum possible profit. In many cases, trying to reach the absolute maximum is considered unrealistic or too difficult.

Key ideas:

• Companies set a target level of profit they find acceptable.
• The main goal is to reach this target rather than pushing for every possible cent of profit.
• This approach is often used when business environments are complex.

Reasons for choosing satisficing:

• Information about the market is often incomplete or expensive to obtain.
• The future is unpredictable and full of risks.
• Managers may have other goals, such as company growth, personal prestige, or job security.
• There is a gap between the business owners and the managers who run the company (the principal-agent problem).
• It is simply easier to manage a business by meeting targets rather than constantly chasing optimization.

Implications for business:

• Firms might not produce at the exact point where Marginal Revenue (MR) equals Marginal Cost (MC).
• Output levels may vary significantly.
• It provides a more realistic look at how businesses act in the real world.
• It explains why some firms do not change their prices every time market costs fluctuate.