Does profit maximisation always imply cost minimisation ? And Does cost minimization always imply profit maximisation ? Can we prove both the results ??
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asked Feb 21, 2017 at 14:38
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2$\begingroup$ You can reduce your cost to zero by going out of business which does not maximize your profit. $\endgroup$– BayesianCommented Feb 21, 2017 at 15:35
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1 Answer
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There is no direct relationship between profit maximisation and cost reduction.
A monopoly can set the profit as high when there is no competition, with little caring of the cost. In addition, policies incentive may even prevent cost reduction. Product obsolescence will also make cost reduction meaningless.
However, capital and forecast will affect the desire of cost reduction.
- Take vinyl record for example, there is little incentive to perform further cost reduction, as the market is niche and there is risk when "vinyl record fashion" subside.
- For luxury industry, it is the niche items that drive the demands. Again, cost reduction will hurts the industries.
- The EpiPen price scandal show that rent seeker can make profit without cost reduction. Again, it is a capitalist dilemma to invest capital to bring down the cost of such product..
