When a firm maximizes total profit, it is maximizing the difference between:

The correct answer emphasizes the concept of profit as the difference between total revenue and total cost. In microeconomics, a firm's total profit is calculated by subtracting total costs from total revenues. When a firm aims to maximize its total profit, it seeks to operate at a level of output where this difference is as large as possible.

Total revenue refers to the total amount of money generated from sales of goods or services, while total cost encompasses all expenses incurred in the production process, including both fixed and variable costs. By maximizing the gap between what it earns from sales and what it spends on production, a firm can achieve its highest profitability.

Focusing on maximum total profit is crucial because it helps businesses make informed decisions about pricing, production levels, and resource allocation. Such strategic decision-making ensures that the firm not only covers its costs but also generates a surplus that contributes to growth and sustainability in the long term.