Question

a) What is meant by Cost minimization for a given level of production and Product maximization for a given level of cost? Offer an example.

Is cost minimization equivalent or identical the concept of product maximization. True of False. Explain. Please offer examples and the use of graphs where necessary, and state any assumption(s) that you need to arrive at your conclusion.

Answer 1

a) Cost minimization : The most effective way to use resources and allocate them to produce the same quality product at a low cost is called cost minimization.

Ex: We produce 10 goods at 100$ which means 1 good is 10$. If we pridpro 10 goods at 90$ than each good will be 9$ which is cost minimization.

Product maximization: To increase the quantity the output at the same cost by using resources and allocating them effectively is called profit maximization.

Ex: If we produce 10 goods at 100$ which means 1 good at 10$. If we can produce 11 goods at 100$ than each good will be 9.1$.

2) Cost minimization and product maximization are not equivalent but they are identical in nature as the core point of this two theories is to increase profit of the firm by reducing the Average total cost of the firm. If we consider the above example in the both the cases the average total cost is 9$ which means it is clear both the cases they are trying the reduce the average total cost of production either by cost minimization or product maximization.