According to cost-minimization rule, the firm must hire labor and capital to the point where the marginal product per dollar is equal for both inputs.
When choosing a price-output combination, businesses must first ensure that any given output level is produced at or below cost. This will enable them to choose a price-output combination that will maximize profits by ensuring that total revenue exceeds total cost by as much as possible. The least cost of spending on pointless or ineffective processes is known as cost minimization.
Any amount of cost reduction will have a significant impact on maximizing profits, whether the changes in spending are subtle or drastic. Businesses must cut costs in order to maximize profits. Cost minimization merely implies that businesses are maximizing productivity or utilizing the least expensive combination of inputs to produce a particular output. Due to fixed inputs like capital, businesses have less flexibility in the short term.
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