Our analysis of consumer demand in Chapter 3 showed us how revenue earned by the firm varies with level of output. A study of supply permits us to identify the cost associated with that output we can then identify different levels of profit and describe conditions whereby the firm might achieve maximum profit. Whether the firm really seeks a maximization of profit, or is capable of doing so, is a matter of debate that will be discussed in Chapter 6. Nevertheless, a clear understanding of the factors involved in determining profit is of crucial importance to our understanding and analysis of the firm.