I understand that profit maximization implies cost minimization, that is, if a firm is maximizing profits, it will definitely minimize costs.

However, under what conditions does cost minimization become an objective in itself?

  • $\begingroup$ Profit maximization does not imply cost minimization. $\endgroup$ – Herr K. Jun 6 '18 at 5:08
  • $\begingroup$ Are there any conditions under which profit maximization does imply cost minimization? $\endgroup$ – PGupta Jun 10 '18 at 9:50
  • $\begingroup$ On a different note, we can derive the w = MRPL condition from P=MC condition. Doesn't that mean profit maximization implies cost minimization under perfect competition? $\endgroup$ – PGupta Jun 10 '18 at 9:51

Firms can be said to pursue cost minimization when they do not have control over demand of their product. In the short run, this implies also that unit prices are fixed.

A standard example here is a Utility, say for electricity. Except in extreme situations of very high demand that reaches the network capacity, consumers consume electricity on demand for a given unit price or price schedule. So "quantity produced" is not determined by the firm, and so the Cost-minimization problem is the most appropriate (minimize costs given output).

| improve this answer | |

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.